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| issue date = 09/08/1997
| issue date = 09/08/1997
| title = Forwards Original Notarized Copy of Lilco Request for NRC Approval of Indirect Transfer of Control Over Minority Interest in Nine Mile Point,Unit 2
| title = Forwards Original Notarized Copy of Lilco Request for NRC Approval of Indirect Transfer of Control Over Minority Interest in Nine Mile Point,Unit 2
| author name = REVELEY W T
| author name = Reveley W
| author affiliation = HUNTON & WILLIAMS
| author affiliation = HUNTON & WILLIAMS
| addressee name =  
| addressee name =  
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{{#Wiki_filter:CATEGORY1~~'REQULQT(INFORMATIONDISTRIBUTION'QTEM(RIDE)IACCESSIONNBR.97091003162DOC.DATE.97/09/08NOTARIZED.NODOCKETIFACIL:50-410NineMilePointNuclearStation,Unit2,NiagaraMoha05000410AUTH.NAMEAUTHORAFFILIATIONREVELEY,W.T.'unton6WilliamsRECIP.NAMERECIPIENTAFFILIATIONDocumentControlBranch(DocumentControlDesk)
{{#Wiki_filter:}}
 
==SUBJECT:==
ForwardsoriginalnotarizedcopyofLILCOrequestforNRCapprovalofindirecttransferofcontroloverminorityinteresti..nNineMilePoint,Unit2.DISTRIBUTIONCODE:MOOSDCOPIESRECEIVED:LTRtENCLJSIZE:TITLE:ChangesofPersonnel/AddressNOTES:ARECIPIENTIDCODE/NAMEPD1-1LAHOOD,DCOPIESLTTRENCL1111RECIPIENTIDCODE/NAMEPD1-1PDCOPIESLTTRENCL10INTERNAL:ACRSCENTER11111111ADM/DIST/T-6E7CAA-16B-13OC/LFDCBSECY/DSB11111011EXTERNAL:NRCPDR11DUENOTETOALL"RIDS"RECIPIENTS:PLEASEHELPUSTOREDUCEWASTE.TOHAVEYOURNAMEORORGANIZATIONREMOVEDFROMDISTRIBUTIONLISTSORREDUCETHENUMBEROFCOPIESRECEIVEDBYYOUORYOURORGANIZATION,CONTACTTHEDOCUMENTCONTROLDESK(DCD)ONEXTENSION415-2083TOTALNUMBEROFCOPIESREQUIRED:LTTR12ENCL10 d~t4 ATLANTA,GEORGIADRUSSELS,BELGIUMCHARLOTTE,NORTHCAROLINAHONGKONGKNOXVILLE,TENNESSEEMCLEAILVIRGINIAW.TAYLORREVELEY,IIIHU'NTONBcVfILLIA.MSRIVEBPBONTPLAZA,EASTTOWEB951EASTBYRDSTBEETRICIXMOND.VIBOINIA23819-4074TELEPHONEI804I788-8200FACSIMILEI804I788-82ISNEWYORK.NEWYORKNORFOLK.VIRGINIARALEIGH.NORTHCAROLINAWARSAW.POLANDWASHINGTON.D.C.DIREcrDIAL'804)7884359E-MAII'REVELEYHUNIOiV.COMSeptember8,1997U.S.NuclearRegulatoryCommissionWashington,D.C.20555Attention:DocumentControlDeskREQUESTFORNRCCONSENTTOLILCO'SINDIRECTTRANSFEROFCONTROLOVERITSINTERESTINNINEMILEPOINTNUCLEARPOPOVERSTATION,UNIT2DOCKETNUMBER50-410OPERATINGLICENSINGNO.NPF-69
 
==DearDocumentControlDesk:==
EnclosedistheoriginalnotarizedcopyoftheLongIslandLightingCompany'srequestforNRCapprovalofanindirecttransferofcontroloverLILCO'sminorityinterestinNineMilePoint2.Verytrulyyours,W.TaylorReveley,IIEnclosurecc:HubertJ.MillerBarryJ.Norris9709i00ie2OeioPDRADOCK0500Hillllllllillltlll!lllllllllllf((lllllll t"t'R/fiP1uI~>II ATTACHMENTBggscoLONCISLANDLICHTINCCOMPANYEXECUTIVEOFFICES:175EASTOLDCOUNTRYROAD%HICKSVILLE,NEWYORK11801WILLIAMJ.CATAOOSINOSCHAIRMANANDCHIEFEXECUTIVECFFICER
 
==DearShareholder:==
June27,1997WewillbeholdingourannualmeetingonAugust7thisyear,andIcordiallyinviteyoutoattend.ThismeetingisparticularlyimportantbecauseyouwillbeaskedtoapproveboththeproposedcombinationofLILCOandBrooklynUnionandthesaleofcertainassetstotheLongIslandPowerAuthority(LIPA)throughastocktransaction.Ihopeyourschedulewillallowyoutoattendand,ifitdoesnot,atleasttoberepresentedbyproxy.ThisjointproxystatementwithBrooklynUnionprovidesyouwithadetaileddescriptionofbothofthesetransactionswhichwebelievearebeneficialtoinvestors,customersandemployees.YourBoardofDirectorsrecommendsapprovalofthesetwoproposalsandurgesyoutovoteFOReachofthem.Everyvotecountsbecauseweneedatwo-thirdsmajorityforapproval.ANYSHARESNOTVOTEDWILLBECOUNTEDASVOTESAGAINSTTHEPROPOSEDTRANSACTIONS.Byjoiningtwoutilitieswithadjacentterritoriesandcomplementaryservices,wewillhavecreatedapowerfulenergycompanyinoneofthestrongestenergymarketsinthecountry.Thesynergiesofthecombinationareexpectedtoresultinoperatingefficienciesofmorethan$1billionover10yearsaswellasbringtogetheratalentedgroupofenergyexperts.Thecombinationofthetwocompanieswillresultintheformationofanewholdingcompanywhichhasnotyetbeennamed.WehaveusedthenameBLHoldingCorp.inthisproxyasatemporaryname.Afterthecombinationofthetwocompanies,theBrooklynUnionandLILCOregulatedutilitieswillbecomeseparatesubsidiariesoftheholdingcompanyalongwithsomeunregulatedsubsidiariesalreadyownedbyBrooklynUnion.Theholdingcompanystructurewillallowustooperateourcoreutilitybusinesses,growourunregulatedsubsidiaries,anddeveloporacquireotherenergyproducts,servicesandcompaniestotakeadvantageoftheemergingcompetitiveenergymarket.UndertheagreementwithBrooklynUnion,LILCOandBrooklynUnionshareholderswilleachexchangetheircurrentsharesforsharesinthenewholdingcompany.LILCOshareholderswillreceive0.803sharesinthenewcompanyforeachLILCOshareand,intotal,LILCOshareholderswillown66percentofthesharesinthenewholdingcompanyandBrooklynUnionshareholderswillown34percent.IftheLIPAtransactiontakesplace,LILCOshareholderswillincreasetheirownershipinthenewcompanyto68percentandreceive0.880sharesforeachLILCOcommonshareandBrooklynUnionshareholderswillown32percentofthenewholdingcompany.UndertheagreementwiththeLongIslandPowerAuthority,LIPAwillacquireLILCO'selectrictransmissionanddistributionsystem,substantiallyallofitselectricregulatoryassetsandits18percentinterestintheNineMilePoint2nuclearpowerplantforapproximately$2.5billionincashandtheassumptionorrefinancingbyLIPAofapproximately$339millioninpreferredstockandapproximately$3.6billionindebt.Theholdingcompanywillendupwithapproximately$1.7billionincashandwillhaveaconsiderablystrongerbalancesheet.t9709100162 Byapprovingbothproposals,youwillbeinapositiontobecometheownerofanexcitingnewenergyholdingcompanywithregulatednaturalgasdistributionutilities,electricgenerationfacilitiesandseveralunregulatedsubsidiaries.Inaddition,thenewcompanywillhaveserviceagreementswithLIPAtomanagetheelectricsystemonLongIsland.Thesetransactionsresolvelong-standingcontroversiesstemmingfromtheconstructionoftheShorehamnuclearplant.Thesolutiontreatsinvestorsfairlywhileprovidingcustomerswithsubstantialratereductionsandprotectionfromcourt-orderedtaxliabilities.IntheNoticeofMeetingthatfollows,wehavealsodescribedothermattersbeingsubmittedforyourvote,allofwhichtheBoardofDirectorsrecommendsyouvoteFOR.AquestionandanswerdiscussionbeginsonpageIandInoredetaileddescriptionsfollow.Weappreciateyoursupportofthesetransactionswhichwestronglybelievetobeinthebestinterestsofallparties.Pleasesign,dateandreturnyourproxycardtoday.IlookforwardtoseeingyouatthemeetingonAugust7,1997.Thankyou.OnbehalfoftheBoardofDirectors,Sincerely,WILLIAMJ.CATAcosINosNeithertheSECnoranystatesecuritiesregulatorhasapprovedthecommonstockofBLHoldingCorp.tobeissuedunderthisJointProxyStatement/Prospectus,ordeterminedifthisJointProxyStatement/Prospectusisaccurateoradcquatc.Anyrepresentationtothecontraryisacriminaloffense.JointProxyStatement/ProspectusdatedJune27,1997,andfirstmailedtoshareholdersonoraboutJune30,1997.
LONGISLANDLIGHTINGCOMPANYEXECUTIVEOFFICES:176EASTOLDCOUNTRYROAD~HICKSVILLE,NEWYORK11601KATHLEENA.MARIONCORPORATESECRETARY4RCIVICEPRESIDENTOFCORPORATESSRVICSSNOTICEOFANNUALMEETINGOFSHAREHOLDERSToBeHeldAugust7,1997/TheAnnualMeetingofShareholdersofLongIslandLightingCompanywillbeheldatTillesCenterforthePerformingArtsatLongIslandUniversity,C.W.PostCampus,NorthernBoulevard,Greenvale,NewYork11548,at3:00p.m.,localtime,onThursday,August7,1997,forthefollowingpurposes:1.toadopttheAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofJune26,1997,betweenTheBrooklynUnionGasCompanyandLongIslandLightingCompany(describedbeginningonp.70);2.toadopttheAgreementandPlanofMerger,datedasofJune26,1997,betweentheLongIslandPowerAuthority(LIPA),LIPAAcquisitionCorp.andLILCO(describedbeginningonp.84);3.toelecttwelveDirectors(describedbeginningonp.J-1);4.toratifytheappointmentofEmst&YoungLLPasindependentauditorsfortheperiodJanuary1,1997toMarch31,1998(describedonp.J-16);5.toapprovetheLILCOAnnualStockIncentiveCompensationPlan(describedbeginningonp.J-16);6.toapprovetheLILCOEmployeeStockPurchasePlan(describedbeginningonp.J-17);7.toapproveanamendmenttotheLILCOCertificateofIncorporationtoincreasethetotalnumberofauthorizedsharesofLILCO,CommonStock(describedbeginningonp.J-18);and8.totakeactiononsuchotherbusinessasmayproperlycomebeforethemeeting.Theproposalspresentedforvotearenotconditionedononeanother.Pleasemark,signanddatetheenclosedproxycardandreturnitpromptlyinthepostpaidreturnenvelopeprovided,whetheror'otyouexpecttoattendthemeeting.Returningtheproxycardwillnotaffectyourrighttovoteinpersonshouldyoudecidetoattendthemeeting.AnysharesnotvotedwillbecountedasvotesagainstItems1and2.OnlyholdersofrecordofLILCOcommonstockandthoseseriesofpreferredstockentitledtov'oteontheLIPATransactionatthecloseofbusinessonJune26,1997areentitledtonoticeofandareeligibletovoteatthemeetingandatallpostponementsoradjournmentsthereof.Ifyouplantoattendthemeeting,pleasebringtheenclosedadmissioncardorproofofownership.Ifyoursharesareheldthroughabankorbrokeragefirmandyouplan.toattendthemeeting,pleaserequestaletterorsomeotherevidenceofownershipfromyourbankorfirmaswellasproperauthorizationifyouwishtovoteyoursharesinperson.IfeitheroftheagreementwithBrooklynUnionortheagreementwithLIPAareadoptedbyourcommonshareholdersandpreferredshareholders,asrequired,andeitheroftheproposedtransactionsoccurs,aholderofrecordofourcommonstock(orinconnectionwiththeagreementwithLIPA,aholderofrecordofpreferredstockentitledtovotethereon)ontherecorddatewhodissentsanddoesnotvoteforthe,proposalisentitledtoreceivepaymentincashifthatholderfollowstheproceduresprovidediriSections623and910of,theNewYorkBusinessCorporationLaw,attachedasAnnexItotheaccompanyingJointProxyStatement/Prospectus.ByOrderoftheBoardofDirectors,KATHLEBNA.MARIONVicePresidentandCorporateSecretary
[THISPAGEINTENTIONALLYLEM>>'LANK]
,TABLEOFCONTENTSQUESTIONS/kANSWERSONTHEBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION;SUMMARYOFJOINTPROXYSTATEMENT/PROSPECTUS................,....JOINTPROXYSTATEMENT/PROSPECTUS.........THEBROOKLYNUNION/LILCOCOMBINATION....IBackgroundoftheCombinatibn....................CommonReasonsfortheCombination..............RecommendationoftheLILCOBoardofDirectors....OpinionofLILCO'sFinancialAdvisor..............PotentialConflictsofInterestsofCertainPersonsintheCombinationandtheLIPATransaction............CertainArrangementsRegardingtheDirectorsandManagementoftheHoldingCompanyFollowingtheCombinationandtheLIPATransaction............FederalIncomeTaxConsiderations.................,AccountingTreatmentStockExchangeListingoftheHoldingCompany.Stock.~~~~~I~~FederalSecuritiesLawConsequences...............AppraisalRights.,MEETINGS,VOTINGANDPROXIES...............TheLILCOMeeting............REGULATORYMATTERSStateApprovalsandRelatedMatters........,.......PublicUtilityHoldingCompanyActof1935.........FederalPowerAct.AntitrustConsiderationsAtomicEnergyActPublicAuthoritiesControlBoardApproval...........General.UNAUDITEDPROFORMACONSOLIDATEDCONDENSEDFINANCIALINFORMATION(PURCHASE)UNAUDITEDPROFORMACOMBINEDi,CONDENSEDFINANCIALINFORMA'fION(POOLING)THECOMPANYFOLLOWINGTHECOMBINATIONANDTHELIPATRANSAClION..................IManagementofthcHoldingCompany...............CommonStockDividendsDESCRIPI'IONOFHOLDINGCOMPANYCAPITALSTOCKGeneralHoldingCompanyPreferredStock..................HoldingCompanyCommonStock..................CertainAnti-TakeoverProvisions...'................THEAMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEANDMERGER.......IThcCombinationEffectsoftheCombination.RepresentationsandWamnties.....................CertainCovenantsIndemnificationEmploymentandWorkforceMatters..~........,....StockandBenefitPlans...........................NoSolicitationofTransactions..~..................AdditionalAgreements.ConditionstoEachParty'sObligationtoEffectthcCombination.........~...........>i...........Termination.TerminationFees.PageI17202025252736363743444747505050515152525254666667676770707072737474757576777880THESTOCKOPI'IONAGREEMENTS..GeneralCertainRepuiehasesRestrictionsonTransferTHELIPATRANSACTIONAgreementandPlanofMerger........OtherBasicAgreementsPage81818283848487SELECTEDINFORMATIONCONCERNINGLILCO...BusinessofLILCOComparisonofShareholders'ights.................ComparisonoftheHoldingCompany'sCertificateofIncorporationandBy-LawstoLILCO'sCcrtiflcateofIncorporationandBy-Laws.......................Anti-TakeoverStatutesPotentialConflictsofInterestofCertainPersonsjntheCombinationandtheLIPATransaction............SecurityOwnershipofCertainBenelicialOwnersandManagementCertainBusmessRelationshipsBetweenBrooklynUnionandLILCOSELECTEDINFORMATIONCONCERNINGBROOKLYNUNION......RecommendationoftheBrooklynUnionBoard....OpinionofBrooklynUnion'sFinancialAdvisor....PotentialConflictsofInterestofCertainPersonsintheCombinationandtheLIPATransaction............ComparisonoftheHoldingCompany'sCertilicateofIncorporationandBy-LawstoBrooklynUnion'sCertilicateofIncorporationandBy.Laws..........TheBrooklynUnionMeeting...........,..........BusinessofBrooklynUnionSecurityOwnershipofCertainBeneficialOwnersandManagementCAUTIONARYSTATEMENTCONCERNINGFORWARD-LOOKINGSTATEMENTS.......88888989'0919294949495101102103105106107LEGALMATfERS.107EXPERTSFUTURESHAREHOLDERPROPOSALS..'07108AnnexA-AnnexB-AnnexC-AnnexDAnnexEAnnexFAnnexGAnnexHAnnexIAnnexJAmendedandRestatedAgreementandPlanofExchangeandMergerAmendedandRestatedLILCOStockOptionAgreementAmendedandRestatedBrooklynUnionStockOptionAgreementAgreementandPlanofMergerOpinionofMerrillLynch,Pierce,Fenner&SniithIncorporatedOpinionsofDillon,Read8cCo.Inc.FormofCertificateofIncorporationoftheHoldingCompanyFormofB'-lawsoftheHoldingCompanySection623andSection910ofthcNewYorkBusinessCorporationLawThcLILCOMeetingProposalsWHEREYOUCANFINDMOREINFORMATION....109LISTOFDEFINEDTERMS.
[THISPAGEINTENTIONALLYLEFTBLANK]
QUESTIONS&ANSWERSONTHEBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION;SUMMARYOFJOINTPROXYSTATEMENT/PROSPECTUSThissummaryliighlightsselectedinformationfromthisdocumentandmaynotcontainalloftlieinformationthatisimportanttoyou.TounderstandtheBrookletUnion/LILCOCombinationandtheLIPATransactionfttllyandforamorecompletedescriptionoftftelegaltermsoftireBroollynUition/ULCOCombinationandtheLIPATransaction,youshould'readcarefullythisentiredocumentandthedocumentswe/taver'eferredyouto.See"W/tereYouCanFindMoreInfomtation"(Page109).InadditiontotheBrooklynUnion/LILCOCombination,BrooklynUnionshareholderswillalsobeaskedtoapproveaproposaltoformanewlioldingcompanypendingtlteconsummationoftheBrooklynUiu'on/LILCOAgreement.LILCOSliareholderswillalsobeaskedtoapprovecertainat/terproposalsinconnectionwithLILCO'sAnnualMeeting.Sliarelioldersthereforeshouldalsoread,carefttllyAnttexJofthisdoctunent.1,WHOARETHETWOCOMPANIESTHATWILLCOMBINE?TheBrooklynUnionGasCompany-alsoreferredtointhisdocumentas"BrooklynUnion"-hasapproximately3,000employees,distributesnaturalgasintheNewYorkCityBoroughsofBrooklynandStatenIslandandintwo-thirdsoftheBoroughofQueens,andservestheenergyneedsofapproximately'.lmillioncustomers.BrooklynUnion'sserviceterritorycoversappro'ximately187squaremiles,withapopulationofapproximately4millionpeople.BrooklynUnionanditssubsidiarieshaveenergy-relatedinvestmentsingasandoilexplorationandproductionintheUnitedStatesandCanada,aswellasinenergyservicesintheUnitedStatesincludingcogeneration,,gaspipelinetransportationandstorage,marketingandotherrelatedservices.BrooklynUnion'sprincipalexecutiveofficeisloca'tedatOneMetroTechCenter,Brooklyn,NY11201-3851,anditsgeneraltelephonenumberis(718)403-2000.LongIslandLightingCompany-'alsoreferredtointhisdocumentas"LILCO"-hasapproximately5,400employeesandprovideselectricandgasservicetomorethan1millioncustomersinNassauandSuffolkCountiesandontheRockawayPeninsulainQueensCounty.LILCO'sserviceterritorycovers1,230squaremileswithapopulationofapproximately2.7millionpeople.LILCO'sprincipalexecutiveofficeislocatedat175EastOldCountryRoad,Hicksville;NY11801,andits,generaltelephonenumberis(516)755-6650.2.WHYHAVETHESETWO'OMPANIESDECIDEDTOCOMBINE?ThecombinationofBrooklynUnionandLILCOwillprovideimportantbenefits'orthetwocompanies,fortheir"customers,employeesandshareholders.Shareholderswillbenefitfromtheupsidepotentialassociatedwiththefollowingfactors:~CombiningBrooklynUnionandLILCOisexpectedtoresultinoperatingefficienciesofapproximately$1billionover10years,whichwillbeusedtoprovideratereductionstocustomers.~Together,thetwocompanieswillhelpspurincreasedregionalbusinessgrowthbyproviding,energyandrelatedservicesatlowerprices.oOurcombinedcompanywillhaveanenhancedabilitytoprovideitsbroadercustomerbase,withcompetitiveenergyproductsandserviceswellintothefuture.~BrooklynUnionandLILCOtogetherintendtomarket,tradeanddeliverenergyproductsandservicesonalargescaletomajormarketareas.~Currentandprospectivecustomerswillbenefitfromtheopportunitytodealwithanenergyservicescompanythatcanofferone-stopshoppingforproviding-andmanaging-theirenergyneeds.Fortheseandotherreasons,theBoardsofDirectorsofbothBrooklynUnionandLILCOhaveunanimouslyapprovedthecombinationofthetwocompanies,believingittobeinthebestinterestsof theirrespectivecompaniesandshareholders.Accordingly,eachBoardrecommendsthatitsrespectiveshareholdersvote"FOR"theadoptionoftheBrooklynUnion/LILCOAgreement.II3.HOWWILLTHE<SETWOCOMPANIESCOMBINE?,BrooklynUnionandLILCOwillcombinepursuanttoabindingshareexchangeandmergeragreementandbecomewholly-ownedsubsidiariesofoneholdingcompany,tobenamedatalaterdate.Forpurposesofthisdocument,thenewcombinedcompanywillbereferredtoasBLHoldingCorp.ormoresimplyasthe"HoldingColnpany."Thetransactionbetweenourcompanieswillbereferredtoasthe"Combination."Underthisagreement,sharesofeachoftheindividualcompanieswillbe,exchangedfororconvertedintosharesofthene'wHoldingCompany,andeachofthecompanies'ommonshareholderswillbecomeshareholdersofthenewHoldingCompany.4.HOWMANYSHARESWILLBROOKLYNUNIONSHAREHOLDERSRECEIVE<?BrooklynUnionshareholderswillreceiveoneshareofthecommonstockoftheHoldingCompanyforeachshareofBrooklynUnioncommonstocktheyown.Forpurposesof:thisdocument,theratioatwhichsharesofBrooklynUnioncommonstockwillbeexchangedforsharesofcommonstockofthe,HoldingCompanywillbereferredtoasthe"BrooklynUnionRatio."5.HOWMANYSHARESWILLLILCOSHAREHOLDERSRE<CEIVE<?ThenumberofsharesLILCOshareholdersreceiveswillbeasfollows(pleaseseeQuestions9-12):a.LILCOshareholderswillreceive0.803ofashareofcommonstockoftheHoldingCompanyforeachshareofLILCOcommonstocktheyown.Inthisscenario,BrooklynUnionandLILCOshareholderswouldown34percentand66percent,respectively,'ftheshareso(thecommonstockoftheHoldingCompany.b.IftheLIPATransactionisalsocompleted(asdescribedinQuestions10-13),=LILCOshareholderswilltheninsteadreceive0.880ofashareofcommonstockoftheHoldingCompanyforeachshareofLILCOcommonstocktheyown.ShareholdersforBrooklynUnionandLILCOwouldthenown32percentand68percent,respectively,ofthesharesofthecommonstockoftheHoldingCompany.IftheLIPATransactionis'completedbuttheCombinationisnot,LILCOalonewouldrestructureintoaholdingcompany.Inthiscase,LILCOshareholderswouldownallofthestoclofthenewHoldingCompany.6,WHOWILLMANAGETHENEWHOLDINGCOMPANY?UponcompletionoftheCombination,Dr.WilliamJ.Catacosinos,currentlyChairmanandChief.ExecutiveOfficerofLILCO,willbecomeChairmanandChiefExe'cutiveOfficeroftheHoldingCompany.Mr.RobertB.Catell,currentlyChairmanandChiefExecutiveOfficerofBrooklynUnion,willbecomePresidentandChiefOperatingOfficeroftheHoldingCompany.OneyearaftertheclosingoftheCombination,Mr.CatellwillsucceedDr.CatacosinosasChiefExecutiveOfficer,withDr.CatacosinosremainingasChairman.7.WHOWILLSERVEONTHEBOARDOFDIRECTORSOFTHEHOLDINGCOMPANY?TheBoardofDirectorsoftheHoldingCompany'illconsistof15members:sixtobedesignatedbytheBrooklynUnionBoard;sixtobedesignatedbytheLILCOBoard;andthreeadditionalpersonsjointlyselectedbyacommitteeconsistingoftwocurrent'BrooklynUniondirectorsandtwocurrentLILCOdirectors.8.WHATWILLTHEDIVIDE<NDRATE<BEONTHEHOLDINGCOMPANY'SCOMMONSTOCK?ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholdersaftercompletionoftheCombinationandthetransactionwithLIPAwillbe$1.78per commonsharc,subjecttoapprovaland'declarationbytheHoldingCompanyBoardofDirectors.IftheCombinationiscompleted,buttheLIPATransactionisnot,itisanticipatedthattheinitialannualdividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare,subjecttoapprovalanddeclarationbytheHoldingCompanyBoardofDirectors.ThepaymentofdividendsbytheHoldingCompanyinthefuturewilldependonbusinessconditions,resultsofoperations,financialconditions,andotherfactors.9.WHATISTHELONGISLANDPOWERAUTHORITY?TheLongIslandPowerAuthority(orLIPA)isacorporatemunicipalinstrumentalityandpoliticalsubdivisionoftheStateofNewYork.Itisalsotheonlystateagencyinthecountrypermittedtoissuetax-exemptbondsoutsideofthefederal.limitsplaceduponeachstate.LIPAisauthorizedundertheLongIslandPowerAuthorityActtoacquirealloranypartofLILCO'ssecuritiesorassetsinorderto,amongotherthings,reduceelectricratespaidbyLILCOcustomers.LIPAwillcreateLIPAAcquisitionCorp.,aNewYorkcorporationandwholly-ownedsubsidiaryofLIPA,inordertocarryouttheLIPATransactiondiscussedbelow.10.WHATISTHE"LIPATRANSACTION"?LILCOhasenteredintoanagreementwithLIPAinwhichLIPAwillacquireLILCO'selectrictransmissionanddistributionsystem,itselectricregulatoryassetsandits18percentinterestintheNineMilePoint2nuclearpowerplant,anucleargeneratingfacilitylocatedinOswego,NewYork.11.HOWWILLTHELIPATRANSACTIONTAKEPLACE?AfterbecomingasubsidiaryoftheHoldingCompany,LILCOwilldistributeto'heHoldingCompany,oroneormoreofitssubsidiaries,allofitsnaturalgasassetsandoperations,non-nuclearelectricgeneratingassetsandoperations,andcommonplant.TheLIPATransactionistheacquisitionoftheremainingLILCOassetslistedinQuestion10forapproximately$2.5billionincashandtheassumption,redemptionorrefinancingbyLIPAofapproximately$339millioninpreferredstockandapproximately$3.'6billionindebtattributabletoLILCO.TheHoldingCompanywillendupwithapproximately$1.7billionincashandwillhaveaconsiderablystrongerbalancesheet.ThechartbelowshowsthebasicproposedstructureoftheHoldingCompanyafterthcBrooklynUnion/LILCOAgreementandLIPATransactiontakeeffec.Shareholders(PreviouslyofBrooklynUnionandLILCO)BLHoldingCorp.BrooklynUnionSubsidiariesConsistingof:I)NewYorkCityNaturalGasAssetsandOperations;and2)UnregulatedOperationsNewSubsidiariesConsistingof:I)Non.NuclearElectricGeneratingAssetsandOperationsformerlyownedbyLILCO;2)LongIslandNaturalGasAssetsandOperationsformerlyownedbyLILCO;and3)LIPAServiceAgreements 12.WHATWILLTHENE<WHOLDINGCOMPANYLOOKLIKEAFTERTHECOMBINATIONANDTHELIPATRANSACTION?ThenewHoldingCompanywillbecomprisedofBrooklynUnion,consistingasitdoesatpresentofitsregulatednaturalgasassetsandoperationsandotherunregulatedsubsidiaries,andanewsubsidiary(orsubsidiaries)formedto,receiveLILCO'snon-nuclearelectricgeneratingassetsandoperations,naturalgasassetsandoperationsandcbmmonplant.Inaddition,thenewHoldingCompanywillenterintoserviceagreementswithLIPAto,amongotherthings,manageandoperatetheelectricsystemonLongIsland.IftheLIPATransactiondoesnotoccur,BrooklynUnionandLILCOwouldbecomesubsidiariespftheHoldingCompanypursuanttotheCombination(seeQuestions1through8).Insuchevent,LILCO,orothersubsidiariesoftheHoldingCompany,wouldowntheassetscontemplatedtobeacquiredbyLIPApursuanttothe-LIPATransactionandwouldserveLongIsland'selectriccustomers.13.WHATARETHEBENEFITSOFTHE-LIPATRANSACTION?TheLIPATransactionshouldbenefitbothcustomersandcommonshareholdersofbothLILCOandBrooklynUnion.TheLIPATransactionseekstotakeadvantageofLIPA'stax-exemptstatusandexemptionfrompaymentoffederalincometax,tolowerratesforelectricratepaycrsonLongIsland.AsaresultofLIPA'sabilitytoissuelow-cost,tax-exemptmunicipalbondsand'heeliminationoffederalincometaxes,alongwiththeBrooklynUnion/LILCOcombinationandthesettlement"ofvarioustaxcertiorariproceedings,itisanticipatedthatLongIslandelectriccustomerswillrealizeanaverageelectricratereductionof17percent.Fromtheshareholders'erspective,theLIPATransactionwillprovidetheHoldingCompanywiththeresourcesneededtosuccessfullycompeteintheemergingenergymarketplaceandstrengthentheHoldingCompany'sfinancialposition.Fortheseandotherreasons,theBoardofDirectorsofLILCOhasunanimouslyapprovedtheLIPATransactionandbelievesitsadoptionisinthebestinterestsofLILCOanditsshareholders.Accordingly,theLILCOBoardrecommendsthatitsshareholdersvote"FOR"theapprovaloftheLIPATransaction.BrooklynUnionhasconsentedtotheLIPATransactiqnanditsBoardofDirectorsbelievesthatitsconsummation,togetherwiththeCombination,isinthebestinterestsofBrooklynUnionanditsshareholders.14.WHOMUSTAPPROVETHELIPATRANSACTION?InadditiontotheapprovalsbytheLILCOBoardofDirectorsandtheconsentoftheBrooklynUnionBoard,allofwhichhavealreadybeenobtained,theLIPATransactionmustbeapprovedby:-LILCOshareholders(commonandcertainpreferred)-PublicAuthoritiesControlBoard-InternalRevenueService-NuclearRegulatoryCommissionFederalEnergyRegulatoryCommissionInaddition,theLIPAAgreementissubjecttoratificationbytheLIPABoardofTrustees.15.WHAT,PROPOSALSAREBROOKLYNUNIONSHAREHOLDERSVOTINGON?BrooklynUnionshareholdersarebeingaskedtoapprovetwosignificantproposals:a.TheBrooklynUnion/LILCOAgreement(describedinQuestion3)inwhichBrooklynUnionwouldbecomeawholly-ownedsubsidiaryoftheHoldingCompany.b.ArestructuringofBrooklynUnionwhichwouldtakeplacebeforetheCombination.BrooklynUnionwouldberestructuredintoaholdingcompanystructurethroughashareexchatigewithKeySpanEnergyCorporation,asdescribedinAnnexJoftheproxymaterialsdeliveredtoBrooklynUnionshareholders.Ifthistransactionisapprovedandconsummated,KeySpanwouldbecometheparentcompanyofBrooklynUnionandKeySpanwouldbesubstitutedforBrooklynUnionintheBrooklynUnion/LILCOAgreement.16.WHATPROPOSALSARELILCOSHARE<HOLDERSVOTINGON?LILCOshareholdersarebeingaskedtoapprovetwosignificantproposals:
a.TheBrooklynUnion/LILCOAgreement(describedinQuestion3)inwhichLILCOwouldbecomeawholly-ownedsubsidiaryoftheHoldingCompany.lb.TheacquisitionofcertainLILCOassetsbyLIPAthroughastocksaleofLILCO(describedinQuestions10-13).Inaddition,aspartofLILCO'sAnnualMeeting,LILCOshareholdersarebeingaskedtoapprovecertainother,proposalsidentifiedintheNoticeofAnnualMeetingasdescribedinAnnexJoftheproxymaterialsdeliveredtoLILCOshareholders.17,WHATSHAREHOLDE<RVOTEISREQUIREDTOAPPROVETHEBROOKLYNUNION/LILCOCOMBINATION?Theholdersofatleasttwo-thirdsoftheoutstandingsharesofeachofBrooklynUnionandLILCOcommonstockmustvote.infavoroftheBrooklynUnion/LILCOAgreement.18.WHATSHARE<HOLDERVOTEISREQUIREDTOAPPROVETHELIPATRANSACTION?'heLIPATransaction'mustbeapprovedbythevoteof:1)theholdersofatleasttwo-thirdsoftheoutstandingsharesofLILCOcommonstockandpreferredstockentitledtovotethereon,votingtogetherasasingleclass;2)a'ajorityoftheoutstandingsharesofLILCOpreferredstockentitledtovotethereon,votingtogetherasaseparateclass;3)amajorityoftheoutstandingsharersofLILCOcommonstockvotingseparatelyasaclass;and4)theholdersofamajorityoftheoutstandingsharesofeachseriesofLILCOpreferredstockentitledtovotethereon,ineachcasevotingseparatelyasaclass.19.WHATWILLHAPPENTOMYREDEEMABLELILCOPREFERRE<DSTOCK?PriortotheclosingoftheLIPATransaction,LILCOwillredeemallredeemablepreferredstock.Thesesharesofredeemedpreferredstockwillnotbeoutstandingatthetimeoftheclosingand,therefore,willnotbeentitledtovoteontheLIPATransaction.20.WHOISENTITLEDTOVOTE?HoldersofrecordofBrooklynUnionandLILCOcommonstockandeligibleLILCOpreferredstockonJune26,1997,theRecordDate,areentitledtovoteattheapplicableshareholdersmeeting.AsofJune23,1997,50,364,212sharesof,BrooklynUnioncommonstockwereoutstanding,121,184,527sharesofLILCOcommonstockwereoutstandingand21,674,000sharesofeligibleLILCOpreferredstockwereoutstanding.21.WHENAREALLOFTHESETRANSACTIONSEXPE<CTEDTOBECOMPLETED?Weareworkingto,completeallaspectsofthetransactionsasquicklyaspossible.Wecurrentlyexpectthesetransactionstobecompletedinthesecondhalfof1998.TheCombinationbyitstermscannotbeconsummatedearlierthanApril1,1998.22.WHATDOINEEDTODONOW?Justsignandmailyourproxycardintheenclosedreturnenvelopeassoonaspossible.ThatwayyoursharescanberepresentedattheBrooklynUnionorLILCOshareholdersmeeting.FailuretoreturnaproxycardwillhavethesaineegeclasavoteagainsttheBrooklynUnion/LILCOAgreement,tlteLIPATransaction(inthecaseofLILCOshareholders)andtheKeySpanshareexcltange(inthecaseofBrooklynUnionshareholders).23.CANICHANGEMYVOTEAFTERIHAVEMAILEDINMYSIGNE<DPROXYCARD?Yes,youmaychangeyourvoteatanytimebeforethevotetakesplaceattheapplicableshareholdersmeeting.Youcanattendtheapplicableshareholdersmeetingandvoteinpersontodoso.Or,ifyouareaBrooklynUnionshareholder,youcancompleteanewproxycardorsendawrittennoticestatingyouwouldliketorevokeyourproxy.Theseshouldbesentto.'Georgeson&CompanyInc.,WallStreetStation.P.O.Box1102,NewYork,NewYork10269-0667.Or,ifyouareaLILCOshareholder,youcansendanewproxycardorwrittennoticetorevokeyourproxytoTheCorporationTrustCotnpatiy,P.O.Box631,1Vilnu'ngton,Delaware19899.
24.SHOULDISENDINMYSTOCKCE<RTIFICATESNOW?No.YoushouldcontinuetoholdyourcertificatesforBrooklynUnionorLILCOstockuntiltheCombinationandLIPATransactionbecomeeffective.Atthattime,youwillreceivewritteninstructionsforexchangingyouroldBrooklynUnionorLILCOstockcertificatesfornewcertificatesrepresentingtheappropriatenumberofsharesofcommonstockofthenewHoldingCompany.LILCOshareholderswillalsoreceivecashpaymentinplaceofanyfractionofashareofthecommonstockoftheHoldingCompany.25.WHEREWILLMYSHARESOFCOMMONSTOCKOFTHEHOLDINGCOMPANYBETRADED?WeexpectthatthecommonstockoftheHoldingCompanywillbelistedandtradedontheNewYorkStockExchange.AftertheCombinationandtheLIPATransactionarecompleted,BrooklynUnionandLILCOcommonstockownedbytheHoldingCompanywillno-longer.betradedandwillbedelisted.26.WHEREAREBROOKLYNUNIONANDLILCOSTOCKCURRENTLYTRADED?BrooklynUnioncommonstockiscurrentlylistedandprincipallytradedontheNewYorkStockExchange,whileLILCOcommonstockiscurrentlylistedandprincipallytradedontheNewYorkandPacificStockExchanges.OnDecember27,1996,thelastfulltradingdayontheNewYorkStockExchangepriorto'thepublicannouncementoftheBrooklynUnion/LILCOAgreement,BrooklynUnioncommonstockclosedat$31.125pershareandLILCOcommonstockclosedat$19.375pershare.Thereportedclosing,pricesofBrooklynUnionandLILCOcommonstockonJune23,1997were$28'nd$23',respectively.27.WHATARETHEFE<DERALINCOMETAXCONSEQUENCESOFTHEPROPOSEDTRANSACTIONSFORSHAREHOLDE<RS?The.taxconsequencestotheshareholdersgenerallydependonwhichtransactionsoccurandtheorderinwhichtheyoccur.Thevariousalternativesandtheirtaxconsequencesarediscussedundertheheading"TheBrooklynUnion/LILCOCombinationFederalIncomeTaxConsiderations."Ingeneral,LILCOcommonandpreferredstockshareholdersshouldrecognizegain(subjecttop'ossibledeferral-seepages37-40)orlossonthereceiptofcashand/orHoldingCompanycommonorpreferredstock,asappropriate,bysuchshareholdersortheExchangeAgentascontemplatedherein.However,iftheLIPATransactionisterminatedprio'rtotheCombination,LILCOshareholdersgenerallyshouldnotrecognizegainorlossforfederalincometaxpurposesintheCombination.WehavestructuredtheCombinationandLIPATransactionsothat,with"certainexceptions,BrooklynUnionshareholderswillnotrecognizeanygainorlossforfederalincometaxpurposes.Inaddition,gainorlossshouldberecognized(subjecttopossibledeferral-seepages37-40)byashareholderwhohassoughtappraisalrightsorbyaLILCOshareholderwhoreceivescashinlieuofafractionalshare(regardlessofwhethertheLIPATransactionisterminatedbeforetheCombination).Moreover,taxmaybepayableoncertainamountsdeemedreceivedbyBrooklynUnionshareholderswhenBrooklynUnionpayscertaintransfertaxes.TheCombinationisconditioneduponthereceiptbyBrooklynUnionofanopinionfromitstaxcounselthatsuchtransactionwillqualifyasareorganizationwhichistax-freetoitsshareholders.AlthoughtheBrooklynUnion/LILCOAgreementallowsBrooklynUniontowaivetheconditionofreceivingsuchtaxopinion,itdoesnotintendtodoso.Ifthisconditioniswaived,wewillnotifyBrooklynUnionsharehold-ersofthewaiveranditsimplicationandresolicittheirapproval.TheLIPATransactionisconditioneduponthereceiptbythepartiesofcertainrulingsfromtheInternalRevenueService.ForafurtherdiscussionoftheFederalincometaxconsequencesof-theproposedtransactions,seethediscussionunder'theheading"TheBrooklynUnion/LILCOCombination-'FederalIncomeTaxConsiderations."
28.WILLTHEPREFERREDSTOCKORBONDSOFBROOKLYNUNIONBEEXCHANGED?BrooklynUnion'spreferredstockwillberedeemedpriortotheconsummationoftheKeySpanShareExchangeandtheCombination.TherightsofbondholdersofBrooklynUnionwillnotchangeandwillcontinuetobeobligationsofBrooklynUnion.29.WILLTHEPREFERREDSTOCKORBONDSOFLILCOBE<EXCHANGED?InconnectionwiththeLIPATransaction,LILCO'sPreferredStock7.95%,SeriesAAwillbeexchangedforaSeriesAAPreferredStock"of*theHoldingCompanyhavingsubstantiallyidenticalterms,assetforthinAnnexD.EachissuedandoutstandingshareofLILCO'spreferredstockthatissubjecttooptionalredemptionatorbeforetheclosingoftheLIPATransactionwillbecalledforredemptionnolaterthanthedateofthisclosing.LILCOpreferredstockthatisnotsubjecttothisoptionalredemption(otherthanSeriesAA)willbeacquiredbyLIPAforcashasaresult'oftheLIPATransaction.Inaddition,afterLILCOhasreceivedalltherequiredconsents,theHoldingCompanywillassumeLILCO'sDebentures,7.30%dueJuly15,1999,and8.20%dueMarch15,2023.ThebalanceofLILCO'sdebtsecuritieswillbecomeobligationsofLIPAafteritacquiresthecommonstockofLILCOthroughtheLIPATransaction.30.HOWWILLMYPARTICIPATIONINBROOKLYNUNION'SORLILCO'SDIVIDE<NDREINVESTME<NTORSTOCKPURCHASEPLANSBEAFFECTED?'llsharesofBrooklynUnion.commonstockandLILCOcommonstockheldunderthecompanies'espectivedividendreinvestmentandstockpurchaseplanswillautomaticallybe'exchangedforsharesofthecomtnonstockoftheHoldingCompanywhentheCombinationand/ortheLIPATransactionarecompleted.TheHoldingCompanywillestablishsimilarplansaftercompletionoftheCombination.31.WHATIFIWANTTORECEIVETHEFAIRMARKETVALUEOFMYCURRENTSTOCKINCASH?Ifyoufollowtherequiredprocedure,youwillhavetherighttoseekanappraisalandpaymentofthefairmarketvalueofyourBrooklynUnionorLILCOshares.YourstockwouldbeappraisedinaNewYorkStateCourtproceeding.AsaBrooklynUnionshareholderyoumust:a.FileawrittenobjectiontotheBrooklynUnion/LILCOAgreementbeforetheproxyvote(eitherpriortoorattheshareholdersmeeting);ANDb.NotvoteinfavoroftheBrooklynUnion/LILCOAgreement.AsaLILCOshareholderyoumust:a.Fileawrittenobjectionto'theBrooklynUnion/LILCOAgreementand/ortheLIPATransactionbeforetheproxyvote(eitherpriortoorattheshareholdersmeeting);ANDb.NotvoteinfavoroftheBrooklynUnion/LILCOAgreementand/ortheLIPATransaction.32.ARETHEREOTHE<RLE<GALREQUIREMENTSIMUSTMEETTOOBTAINANAPPRAISALANDPAYMENTINCASHFORMYSHARES?Yes.ThesearedescribedinthisJointProxyStatement/Prospectusonpages44-46.TheprovisionsofNewYorklawthatgovernappraisalrightsarealsoattachedasAnnexI.Ifyouareentitledtoandwishtoseekanappraisalofyourshares,youshouldreadandfollowthoseprovisionscarefully.Youshouldbeaware,too,thatanappraisalmayresultinacashpaymentforyoursharesthatishigherorlowerthanthevalueoftheHoldingCompanysltaresthatwouldbeissued'toyouinconnectionwiththeBrooklynUnion/LILCOAgreementor,ifapplicable,theLIPATransaction.33.WHOCANICA'LLIFIHAVEANY'ADDITIONALQUESTIONS?Twospecialtoll-freetelephonenumbershavebeenestablishedforyou.7 BrooklynUnionshareholdersarewelcometocallGeorgeson&CompanyInc.,whichjs,assistingBrooklynUnioninsolicitationofproxies,at1-800-223-2064.LILCOshareholdersarewelcometocallD.F.King8cCo.,Inc.,'hichisassistingLILCOinsolicitationofproxies,at1-800-207-3155.Stock,and,LILCOreceivedopinionsfromitsfinan-cialadvisor,Dillon,Read&Co.'Inc.,thattheshareexchangeratiosandtheLIPATransactionwerefair,fromafinancialpointofview,toLILCOsharehold-ers.Theopinionsof'thefinancialadvisorsareat-tachedasannexestothisJointProxyStatement/Prospectus.Weencourageyoutoreadtheopinioristhoroughly.SUMMARYOFOTHERSELECTEDINFORMATIONRegulatoryApprovals(Seepage50)TheapprovalsofthePublicServiceCommis-sionoftheStateofNewYorkundertheNewYorkPublicServiceLaw,theSecuritiesandExchangeCommissionunderthePublicUtilityHoldingCom-panyActof1935,theFederalEnergyRegulatoryCommissionundertheFederalPowerAct,theNu-clearRegulatoryCommissionundertheAtomicEn-ergyActof1954,aswellastheexpirationorearlierterminationoftheapplicablewaitingperiodundertheHart-Scott-RodinoAntitrustImprovementsActof1976arerequiredinordertocompletetheCombina-tionand,withtheexceptionoftheapprovalofthePublicServiceCommission,theLIPATransa'ction.Inaddition,theLIPATransactionalsorequiresap-provaloftheNewYorkStatePublicAuthoritiesControlBoard.AsofthedateofthisJointProxyStatement/Prospectus,noneoftherequiredregulatoryapprovalshasbeenobtained.OpinionsofFinancialAdvisors(Seepages27and95)IndecidingtoapprovetheBrooklyn"Union/LILCOAgreement,theBoardsofDirectorsofBrooklynUnionandLILCOconsideredtheopinionsoftheirrespectivefinancialadvisorsastothefairnessoftheshareexchangeratiofromafinancial,pointofview.Inaddition,indecidingtoapprovetheLIPATransaction,theBoardofDirectorsofLILCOalsoconsideredaseparateopinionfromitsfinancialadvi-sorastothefairnessof,theLIPATransactionfromafinancialpointofview.TheBoardofDirectorsofBrooklynUnionhasreceivedanopinionfromitsfi-nancialadvisor,MerrillLynch,Pierce,,Fenner&SmithIncorporated,datedasofthedateofthisJointProxyStatement/Prospectus,totheeffecttliattheBrooklynUnionRatiov/asfair,fromafinancialpointofview,totheholdersofBrooklynUnionCommonInterestsofOJJrcersandDirectorsintireCombirration(Seepages36,91'and101)The'officersanddirectorsofBrooklynUnionandLILCOmayhaveinterestsinthetransactionthataredifferentfrom,orinadditionto,yours.Forexam-ple,pursuanttoemployment.agreementsandsever-anceplans,theCombination(and,withrespecttoLILCO,theLIPATransaction)willresultinachangeincontrolofbothBrooklynUnionandLILCO,enti-tlingofficersofthecompaniestoreceiveseverancebenefitsundercertaincircumstances.Asoftherecorddate,directorsandofficersofBrooklynUnion,LILCO,andtheiraffiliatesasagroupownedlessthan1%oftheissuedandoutstand-ingsharesofcommonstockof'theirrespectivecom-panies.ConditionstotheCombination(Seepage77)andLIPATransaction(Seepage87)CompletionoftheCombinationdependsonthesatisfactionofcertainconditions,includingbutnotlimitedto:(a)approvalofBrooklynUnion'sandLILCO'scommonshareholders;and(b)allrequiredapprovalsofregulatoryandgovernmentalagencies.Inaddition,thecompletionoftheLIPATransactionisconditioneduponLIPA'sabilitytoobtainthenec-essaryfinancingandapprovaloftheLILCOpreferredstockholdersentitledtovotethereon.ConsuinmationoftheCombinationisnotconditionedupontheconsummationoftheLIPATransaction,andconsumma-tionoftheLIPATransactionisnotconditioneduponconsummationoftheCombination.AmendmentorTernrinationoftireBrooklynUnion/LILCOAgreement(Seepage78)andLIPAAgreement(Seepage87)TheBoardsofDirectorsofBrooklynUnionandLILCOmayamendanyofthetermsoftheBrooklyn Union/LILCOAgreementatanytimebeforeorafteritsadoptionbytheshareholdersofthecommonstockofBrooklynUnionandLILCO.Noamendmentadoptedaftershareholderapproval,however,maymateriallyandadverselyaffecttherightsofsuchshareholders.Atanytimepritirtoclosing,whetherbeforeorafterapprovalbytheshareholdersofBrooklynUnionorLILCO,theBrooklynUnion/LILCOAgreementmaybeterminatedbymutualconsentoftheBoardsofDirectorsofBrooklynUnionandLILCOandun-dercertainothercircumstances.Dependinguponthereasonforsuchtermination,substantialfeesmaybedueandpayablebyBrooklynUnionorLILCO.NSimilarly,atanytimepriortoclosing,whetherbeforeorafterapprovalbytheshareholdersofLILCO,theLIPAAgreementmaybeterminatedbymutualconsentoftheBoardofDirectorsofLILCOandtheBoardofTrusteesofLIPAandundercertainothercircumstances.PursuanttotheBrooklynUnion/LILCOAgreement,LILCOmaynotterminatetheLIPAAgreementwithouttheconsentofBrooklynUnion.ContparativeShareholderRights(Seepage89)WhentheCombinationiscompleted,holdersofBrooklynUnioncominonstockandLILCOcommonstockwillbecomeholdersofthecommonstockoftheHoldingCompany,andtheirrightswillbegov-ernedbytheHoldingCompany'scertificateofincor-porationandby-laws(theformsofwhichareat-tachedasAnnexesGandH).Certaindifferencesbe-tweentherightsofholdersofthecommonstockof~theHoldingCompanyandthoseofholdersofBrook.-lynUnionandLILCOcommonstockaresumma-rizedonpages102-103and89-90,respectively.RegulationoftheHoldingCompany,BrooklynUnionandLILCO(Seepage$0)FollowingtheCombinationandtheLIPATrans-action,theHoldingCompany,astheparentcompanyofBrooklynUnionandthesubsidiarieswhoreceivedfromLILCOtheassetsdescribedabove,willnotbedirectlysubjecttoregulationbythePublicServiceCommissionoftheStateofNewYorkortheFederalEnergyRegulatoryCommission.However,itsutilitysubsidiarieswillberegulatedbythevariousregula-toryagenciesthatcurrentlyregulateBrooklynUnionandLILCO'sgasandelectricgeneratingoperations.WhentheCombinationoccurs,theHoldingCompanywillbecomea"publicutilityholdingcompany"asdefinedinthePublicUtilityHoldingCompanyActof1935,andwillfileanexemptionstatementwiththeSecuritiesandExchangeCommissiontoexemptitandeachofitssubsidiariesfrommostoftheprovi-sionsofthatAct.Currently,neitherBrooklynUnionnorLILCOissubjecttothatAct.AccountingTreatment(Seepage43)TheaccountingfortheCombinationwillbedependentonwhethertheLIPATransactionwillbecompleted.IftheLIPATransactioniscompleted,the,Combinationwillbeaccountedforusingthepurchasemethodofaccounting.IftheLIPATransactionisnotcompleted,theCombinationisexpectedtobeaccountedforasapoolingofinterests.Asapoolingofinterests,wewilltreat'ourcompaniesasiftheyhadalways-beencombinedforaccountingandfinancialreportingpurposes.ForafurtherdiscussionofaccountingconsiderationsabouttheLIPATransaction,see"AccountingTreatment."StatutoryAppraisalRights(Seepage44)EligibleholdersofsharesofBrooklynUnionandLILCOcommonstockwhodonotvotefor'heCom-bination,or(inthecaseofholdersofLILCOCom-monStock)theLIPATransaction,asappropriate,andwhotimelydissentandfollowtheproceduresinSec-tion623oftheNewYorkBusinessCorporationLawwillthenhavecertainrightsasaresultofthesetrans-actionstodemandpaymentincashforthe"fairval-ue"oftheirrespectiveBrooklynUnionandLILCOcommonshares.Failuretotakeanyrequiredactiononatimelybasismayresultinthelossofthoserights.Theamountobtainableuponavalidexerciseofthoserightsissubjecttodeterminationbyjudicialproceed-'ngand,asaresult,cannotbeestimatedatthistime.LILCOpreferredshareholdersentitledtovoteontheLIPATransactionsarealsoentitledtostatutoryap-praisalrights.BrooklynUnionpreferredstockwillberedeemedpriortoconsummationoftheCombination;and,therefore,holdersofsuchshareswillnotbeenti-tledtoappraisalrights.
SUMMARYOFSELECTEDHISTORICALANDUNAUDITEDPROFORMACOMBINED/CONSOLIDATEDCONDENSEDFINANCIALINFORMATIONBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION(PurchaseandPoolingMethodsofAccounting)SelectedHistoricalFinancialInformationWeareprovidingthefollowingfinancialinformationtoaidyouinyouranalysisofthefinancialaspectsoftheCombinationandtheLIPATransaction.WederivedthisinformationfromunauditedfinancialstatementsofBrooklynUnionandL'ILCOforthe12monthperiodendedMarch31,1997,andtheauditedfinancialstatementsofBrooklynUnionandLILCO'from1992through1996.Theinformationisonlyasummaryandyoushouldreaditinconjunctionwiththehistoricalfinancialstatements(andrelatednotes)containedinourannualreportsandtheotherinformationthatwehavefiledwiththeSEC.See"WhereYouCanFindMoreInformation"onpage109.BROOKLYNUNION-HISTORICALFINANCIALINFORMATIONAtorforthc12monthsAtorforthcYearEndedSeptember30,ended199719961995199419931992(unaudited)(DollarsinMillions,ExceptforPerShareAmounts)Totalrevenues.................$1,472.8$1,432.0$1,216.3$1,338.6$1,205.5$1,074.9Earningsforcommonstock.......128.5(1)122.6(1)91.587.076.257.8Earningspercommonshare.......2.58(1)2.48(1)1.901.851.731.35Cashdividendsdeclaredpercommonshare................1.441.421.391.351.321.29Bookvaluepercommonshare....20.0018.1716.9416.2715.5514.56Totalassets.2,493.82,289.62,116.9"2,029.11,897.81,748.0Long-termdebt.................724.6712.0720.6701.4689.3'82.0(1)IncludesgainsonthesaleofsubsidiarystockandaCanadianplantof$33.5million,or$0.68pershare,,aftertaxes,offsetbyasubsidiaryreorganizationchargeof$7.8million,or$0.16pershare,aftertaxes.LILCO-HISTORICALFINANCIALINFORMATIONAtorforthc12monthsendedMarch31>19971996AtorfortheYearEndedDecember'31,1995199319941992TotalrevenuesEarningsforcommonstock....Earningspercommonshare....Cashdividendsdeclaredpercommonshare.............Bookvaluepercommonshare.TotalassetsLong-termdebt..............1.7821.0711,849.74,457.01.781.781.781.761.7220.8920.5020.2119.8819.5812,209.712,527.612,479.312,453.89,853.14,456.84,706.65,145.44,870.34,741.0(unaudited)(DollarsInMillions,ExceptforPerShareAmounts)$3,137.7'3,150.7$3,075.1$3,067.3$2,881.0$2,621.8270.3264.2250.7248.8240.5238.02.242.202.102.152.152.1410 SelectedUnauditedProFormaConsolidatedCondensedFinancialInformation-BrooklynUnion/LILCOCombinationwithLIPATransaction.ThefollowingunauditedproformaconsolidatedfinancialinformationreflectsadjustmentstothehistoricalfinancialstatementsofLILCOtogiveeffecttotheproposedIlistributionoftheTransferredAssets(asdefinedbelow)toawholly-ownedsubsidiaryoftheHoldingCompanyandsubsequentsaleoftheremainingLILCOcommonstocktoasubsidiaryofLIPA.TheproformastatementshavebeenfurtheradjustedtogiveeffecttotheproposedCombinationwithBrooklynUnion.TheunauditedproformaconsolidatedcondensedbalancesheetatMarch31,1997giveseffecttotheproposedtransactionwithLIPAandtheCombinationasiftheyhadoccurredatMarch31,1997.TheunauditedproformaconsolidatedcondensedstatementofincomeforthetwelvemonthperiodendedMarch31,1997giveseffecttotheproposedtransactionwithLIPAandtheCombinationasiftheyhadoccurredatApril1,1996.ThesestatementsarepreparedonthebasisofaccountingfortheCombinationunderthepurchasemethodofaccountingandarebasedontheassumptionssetforthinthenotesthereto.Wehavepresentedbelowtheselectedunauditedproformaconsolidatedcondensedfinancialinformation,reflectingtheproposedtransactionwithLIPA("LILCOasadjusted")andalso-reflectingthistransactionwiththeCombination("HoldingCompany").YoushouldnotrelyontheunauditedproformainformationasbeingindicativeofthehistoricalresultsthatwewouldhavehadorthefutureresultsthatwewillexperienceaftertheproposedtransactionwithLIPAortheCombination.See"UnauditedProFormaConsolidatedCondensedFinancialInformation"onpage54.SELECTEDUNAUDITEDPROFORMAFINANCIALDATATotalrevenues.NetincomeEarningsforcommonstockEarningspercommonshare(1)Cashdividendsdeclaredpercommonshare(1)(2)(3).TotalassetsLong-termdebt.PreferredstockAtorfortheTwelveMonthPeriodEndedMarch31,1997LILCOHoldingasadJustedCompany(DollarslnMillions'xceptforPerShareAmounts)$1,629.0$3,101.884.9206.049.0170.1.411.09.331.785,114.47,916.2922.21,646.8438.0438.0(1)EachshareofBrooklynUnioncommonstockwillbeexchangedforoneshareofcommonstockoftheHoldingCompanyandeachshareofLILCOcommonstockwillbeexchangedfor0.880ofashareofcommonstockoftheHoldingCompanyinthe.Combination.ThesepershareamountsarecalculatedforeachshareofcommonstockoftheHoldingCompanythatwouldhavebeenoutstandinghadthebindingshareexchangesbeenconsummatedasofthedateandfortheperiodreferredtoabove.(2)ToarriveatLILCOasadjustedproformacashdividendsdeclaredpercommonshare,LILCO'shistoricalpayoutratioforthe12monthperiodendedMarch31,1997,wasappliedtotheLILCOasadjustedearningspercommonshare.(3)BrooklynUnionandLILCOexpecttocontinuetheirrespectivecurrentdividendpoliciesuntilthecompletionoftheCombination.ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.11 ComparativePerCommonShareInformation-BrooklynUnion/LILCOCombination'withLIPATransaction.Thefollowingtablesummarizesthepercommonshareinformationfor'BrooklynUnionandLILCOonaproformaconsolidated,equivalentandhistoricalbasis.ComparativePerShareInformationUnauditedHoldingCompanyProFormaConsolidated(2)(3)Earningspercommonshare.CashdividendsdeclaredpercommonshareBookvaluepercommonshare'torforthe12MonthsEndedMarch31,1997(unaudtted)$1.091.7824.14UnauditedLILCOasAdjusted(1)(3)Earningspercommonshare.CashdividendsdeclaredpercommonshareBookvaluepercommonshare.$.41.3320.86LILCOPerShareEquivalents(5)Earningspercommonshare.CashdividendsdeclaredpercommonshareBookvaluepercommonshare$.961.5721.24LILCO-HistoricalFinancialInformationEarningspercommonshare.Cashdividendsdeclaredpercommonshare...~Bookvaluepercommonshare.$,2.241.7821.07BrooklynUnion-HistoricalFinancialInformation(4)(5)Earningspercommonshare.$2.58Cashdividendsdeclaredpercommonshare144Bookvaluepercommonshare20.00(1)LILCO'sbalancesheetandresultsofoperationsasofandforthetwelvemonthperiodendedMarch31,1997havebeenadjustedtoreflecttheproposedtransactionwithLIPA.(2)LILCO'sbalancesheetandresultsofoperationsasofandforthetwelvemonthperiodendedMarch31,1997,havebeenadjustedtoreflecttheLIPATransactionandtheCombination.(3)ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.ToarriveatLILCOasadjustedproformacashdividendsdeclaredpercommonshare,LILCO'shistoricalpayoutratioforthe12monthperiodendedMarch31,1997,wasappliedtotheLILCOasadjustedearningspercommonshare.(4)IncludesgainsonthesaleofsubsidiarystockandaCanadianplantof$33.5milhonor$0.68pershare,aftertaxes,offsetbyasubsidiaryreorganizationchargeof$7.8millionor$0.16pershare,aftertaxes.(5)LILCOPerShareEquivalentsare0.880ofUnauditedProFormaConsolidatedpershareequivalents,whileBrooklynUnionpersharcequivalentsarethesameashistorical.12 SelectedUnauditedProFormaCombinedCondensedFinancialInformation-BrooklynUnion/LILCOCombinationwithnoLIPATransaction.Thefollowingunauditedproformacondensedfinancialinformationreflectsadjustmentsto,thehistoricalfinancialstatementsofLILCOtogiveeffecttotheproposedmergerwithBrooklynUnioninaccordancewiththeCombination.TheunauditedproformacombinedcondensedbalancesheetatMarch31,1997giveseffecttotheCombinationasifithadoccurredatMarch31,1997.Theunauditedproformacombinedcondensedstatementsofincomeforeachofthethree12monthperiodsinthethreeyearperiodendedMarch31,1997giveeffecttotheCombinationasifithadoccurredatApril1,1994.ThesestatementsarepreparedonthebasisofaccountingfortheCombinationusingthepoolingofinterestsmethodofaccountingandarebasedontheassumptionssetforthinthenotesthereto.Wehavepresentedbelowtheselectedunauditedproformacombinedcondensedfinancialinformation,reflectingtheproposedCombination.YoushouldnotrelyontheunauditedproformainformationasbeingindicativeofthehistoricalresultsthatwewouldhavehadorthefutureresultsthatwewillexperienceaftertheCombination.See"UnauditedProFormaCombinedCondensedFinancialInformation"onpage60.SELECTE1DUNAUDITEDPROFORMAFINANCIALDATATotalrevenues..Netincome.Earningsforcommonstock.Earningspercommonshare(1).Cashdividendsdeclaredpercommonshare(1)(2)Totalassets.Long-termdebtPreferredstockAtorfortheTwelveMonthPeriodsEndedMarch31919911996~1996(DollsrslnMillions,ExceptforPerShareAmounts)$4,610.5$4,518.2$4,244.6451.2'09.3390.6399.1356.8337.72.722.462.381.781,78.~1.7814,343.55,181.6702.1(1)EachshareofBrooklynUnioncommonstockwillbeexchangedforoneshareofcommonstockoftheHoldingCompanyandeachshareofLILCOcommonstockwillbeexchangedfor0.803ofashareofcommonstockoftheHoldingCompanyinaccordancewiththeCombination.ThesepershareamountsarecalculatedforeachshareofcommonstockoftheHoldingCompanythatwouldhavebeenoutstandinghadtheCombinationbeenconsummatedatthebeinninofeacheriodresented.ggPP(2)BrooklynUnionandLILCOexpecttocontinuetheirrespectivecurrentdividendpoliciesuntilthecompletionoftheCombination.ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.13 ComparativePerCommonShareInformation-BrooklynUnion/LILCOCombinationwithnoLIPATransactionThefollowingtablesummarizesthepercommonshareinformationforBrooklynUnionandLILCOonaproformac'ombined,equivalentandhistoricalbasis.TheLILCOpershareequivalentsarecalculatedbymultiplyingtheunauditedproformacombinedpershareamountsby0.803asLILCOshareholderswillreceive0.803sharesofthecommonstockoftheHoldingCompanyinexchangeforeachshareofLILCOCommonStock.ComparativePerShareInformationUnauditedHoldingCompanyProFormaCombinedEarningspercommonshare(1)Cashdividendsdeclaredpercommonshare(4)BookvaluepercommonshareLILCOPerSharcEquivalents(2)Earningspercommonshare...............Cashdividendsdeclaredpercommonshare.BookvaluepercommonshareBrooklynUnion-UnauditedHistoricalFinancialInformation(2)'Earningspercommonshare(3)Cashdividendsdeclaredpercommonshare.BookvaluepercommonshareLILCO-UnauditedHistoricalFinancialInformationEarningspercommonshareCashdividendsdeclaredpercommonshare.BookvaluepercommonshareAtorforthe12monthperiodendedMarch31,199719961995$2.72$2.46$2.381.781.781.7823.74$2.18$1.98$1.911.431.431.4319.06$2.58$1.93$1.841.441.401.3720.00$2.24$2.19$2.131.781.781.7821.07(1)BrooklynUnion'sunauditedbalancesheetasofMarch31,1997andresultsofoperationsforeachofthethree12monthperiodsduringthethreeyearperiodendedMarch31,1997havebeencombinedwithLILCO'sunauditedbalancesheetasofMarch31,1997andresultsofoperationsforeachofthethree12monthperiodsduringthethreeyearperiodendedMarch31,1997toarriveattheunauditedproformacombinedbalancesheetasofMarch31,1997andtheunauditedstatementsofincomeforeachofthethree12monthperiodsduringthethreeyearperiodendedMarch31,1997,fromwhichthecomparativepersharcinformationhasbeenderived.(2)LILCOPerShareEquivalentsare0.803ofUnauditedHoldingCompanyProFormaCombinedpershareequivalents,whileBrooklynUnionpershareequivalentsarethesameasitshistorical.(3)IncludesgainsonthesaleofsubsidiarystockandaCanadianplantof$33.5millionor$0.68pershare,aftertaxes,offsetbyasubsidiaryreorganizationchargeof$7.8millionor$0.16pershare,aftertaxesforthe12monthperiodendedMarch31,1997.(4)BrooklynUnionandLILCOexpecttocontinuetheirrespectivecurrentdividendpoliciesuntilthecompletionoftheCombination.ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.14 ComparativeDividendsandMarketPrices-LILCOLILCOcommonstockislistedandprincipallytradedontheNewYorkStockExchangeandonthe.PacificStockExchange.ThetablebelowsetsforththedividendspaidandthehighandlowsalespricesofLILCOcommonstockforthefiscalperiodsindicatedasreportedinTheWallStreetJournalasNewYorkStockExchangeCompositeTransactions.PriceRange~<YearEndedDecember31,1995"FirstQuarter.SecondQuarter.ThirdQuarterFourthQuarterYearEndedDecember31,1996FirstQuarter.~SecondQuarter.ThirdQuarterFourthQuarterYearEndingDecember31,1997FirstQuarterSecondQuarter*(throughJune23,1997)DividendsPaid$0.4450.4450.4450.445High$16s/4,17$173/417%LO'lv$13'/414%15%15N$0.445'.445$24'A$21s/423'/4'2s/4$0A45'185$157/k0.44517N16MI0.44517K16NOA4522%17MTheLILCOSeriesAAPreferredStockislistedandtradedontheNewYorkStockExchange.ThetablebelowsetsforththedividendspaidandthehighandlowsalespricesoftheSeriesAAPreferredStockforthefiscalperiodsindicatedasreportedinTheWallStreetJournalasNewYorkStockExchangeCompositeTransactions.IiPriceRangeDividendsPaidHighLowYearEndedDecember31,1995FirstQuarterSecondQuarterThirdQuarter.FourthQuarterYearEndedDecember31,1996'irstQuarterSecondQuarterThirdQuarter.FourthQuarterYearEndingDecember31,1997FirstQuarterSecondQuarter(throughJune23,1997)$0.4968750.4968750.4968750.496875$24N$23s/424s/s2324th2325K24'/4$0.4968750.496875$26sih$25'/426N25M$0.496875$23s/4$22i/i0.49687524s/42350.49687525240.49687526i/423N15 ComparativeDividendsandMarketPrices-BrooklynUnionBrooklynUnioncommonstockislistedandprincipallytradedontheNewYorkStockExchange.ThetablebelowsetsforththedividendspaidandthehighandlowsalespricesofBrooklynUnioncommonstockforthefiscalperiodsindicatedasreportedin''TheWallStreetJournalasNewYorkStockExchangeCompositeTransactions.YearEndedSeptember30,1995,.FirstQuarter..SecondQuarter..................~.ThirdQuarterFourthQuarterYearEndedSeptember30,1996FirstQuarter.SecondQuarter.,ThirdQuarterFourthQuarterYearEndingSeptember30,1997FirstQuarter.SecondQuarterThirdQuarter(throughJune23,1997)$0.33750.34750.34750.3475$25N$21N243/42226M23s/426sik23'/4$0.3475'$29N$24N0.3550'9%25s/40.355027N'4%0.355028N'4%$0.3550$32N$277ik0.365030N27'h0.36502926NPriceRangeDividendsPaidHighLowFhOnDecember27,1996,thelastfulltradingdaybeforethepublicannouncementoftheBrooklynUnion/LILCOAgreement,thehighandlowpricespershareof(i)LILCOcommonstockwere$19'nd$19N,respectively,and(ii)BrooklynUnioncommonstockwere$31Nand$30',respectively.OnMarch18,1997,thelastfulltradingdaybeforethepublicannouncementofanagreementinprinciplerelatingtotheLIPATransaction,thehighandlowsalespricespershareof(i)LILCOcommonstockwere$23's/iaand$23N,respectively,and(ii)BrooklynUnioncommonstockwere$29Nand$29,respectively.OnJune25,1997,thelastfulltradingdaybeforeLILCOandLIPAexecutedanddeliveredtheLIPAAgreement,thehighandlowsalespricespershareoftheSeriesAAPreferredStockwere$26and$25.88,respectively.BrooklynUnionandLILCOshareholdersareencouragedtoobtaincurrentmarketquotationsforBrooklynUnioncommonstock,LILCOcommonstockandSeriesAAPreferredStock.16 JOINTPROXYSTATEMENTOFTHEBROOKLYNUNIONGASCOMPANYANDLONGISLANDLIGHTINGCOMPANYPROSPECTUSOFBLHOLDINGCORP.ANDKEYSPANENERGYCORPORATIONThisJointProxyStatementandProspectus("JointProxyStatement/Prospectus")isbeingfurnishedtotheholdersofcommonstock,parvalue$5pershare,ofLILCO("LILCOCommonStock")andtotheholdersofSeriesAApreferredstock,parvalue$25pershare("SeriesAAPreferredStock"),SeriesCCpreferredstock,parvalue$100pershare("SeriesCCPreferredStock"),SeriesGGpreferredstock,parvalue$25persliare("SeriesGG'PreferredStock"),SeriesQQpreferredstock,parvalue$25persliare("SeriesQQPreferredStock"),andSeriesUUpreferredstock,parvalue$25pershare("SeriesUUPreferredStock"),ofLILCO(suchseriesbeingcollectivelyreferredtohereinas"LILCOPreferredStock"),inconnectionwiththesolicitationofproxiesbytheBoardofDirectorsofLILCOforuseattheAnnualMeetingofLILCOshareholderstobeheldonAugust7,1997,at3:00p.m.localtime,atTillesCenterforthePerformingArtsatLongIslandUniversity,C.W.PostCampus,NorthernBoulevard,Greenvale,NewYork11548andatanyandalladjournmentsorpostponementsthereof(the"LILCOMeeting"),andtheholdersofcommonstock,parvalue$0.33N,pershare("BrooklynUnionCommonStock"),andtheholdersofPreferredStock,parvalue$100pershare,ofTheBrooklynUnionGasCompanyinconnectionwiththesolicitationofproxiesofBrooklynUnionCommonStockbytheBoardofDirectorsofBrooklynUnionforuseattheSpecialMeetingofBrooklynUnionshareholderstobeheldonAugust7,1997,at3:00p.m.localtime,atOperaHouse,BrooklynAcademyofMusic,30LafayetteAvenue,Brooklyn,NewYork11217andatanyandalladjoummentsorpostponementsthereof(the"BrooklynUnionMeeting,"andtogetherwiththeLILCOMeeting,the"ShareholderMeetings")..ThisJointProxyStatement/Prospectusrelates,amongotherthings,totheproposedcombinationofLILCOandBrooklynUnion(the"Combination"),inwhichsharesofLILCOCommonStockwillbecometherighttoreceivesharesofcommonstock,parvalue$0.01pershare("HoldingCompanyCommonStock"),ofBLHoldingCorp.,acorporationtobeformedunderthelawsoftheStateofNewYork(the"HoldingCompany"),BrooklynUnionwillmergewithawhollyownedsubsidiaryoftheHoldingCompany(the"Merger")andsliaresofBrooklynUnionCommonStockwillbeconverted'intosharesofHoldingCompanyCommonStock,allpursuanttoanAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofJune26,1997(the"BrooklynUnion/LILCOAgreement"),betweenLILCOandBrooklynUnion.ConsummationoftheCombinationissubjecttovariousconditions,includingtheadoptionoftheBrooklynUnion/LILCOAgreementbytheholdersoftwo-thirdsofthevotingpoweroftheoutstandingsharesofLILCOCommonStockandtheholdersoftwo-thirdsofthevotingpoweroftheoutstandingsharesofBrooklynUnionCommonStockattheShareholderhfeetings.InconnectionwiththeproposaltoadopttheCombination,eachoutstandingshareofLILCOCommonStockandeachoutstandingshareofBrooklynUnionCommonStockisentitledtoonevoteattheirrespectivemeetings.OnlyholdersofLILCOCommonStockandBrooklynUnionCommonStockofrecordatthecloseofbusinessonJune26,1997(the"RecordDate")willbeentitledtonoticeofandtovoteattheShareholderMeetingsoranyadjournmentsorpostponementsthereof.HoldersofBrooklynUnionpreferredstockasoftheRecordDateareentitledtonoticeoftheBrooklynUnionMeetingbutaren'otentitledtovotethereat.AsofJune23,1997,121,184,527sharesofLILCOCommonStockand50,364,212sharesofBrooklynUnionCommonStockwereissuedandoutstanding.17 ThisJointProxyStatement/Prospectusalsorelatesto"theproposedmerger(the"LIPATransaction")ofLILCOwithLIPAAcquisitionCorp.,aNewYorkcorporation("LIPASub")andawholly-ownedsubsidiaryoftheLongIslandPowerAuthority',acorporatemunicipalinstrumentalityand'politicalsubdivisionoftheStateofNewYork("LIPA"),pursuanttotheAgreementandPlanofMerger,datedasofJune16,1997(the"LIPAagreement"),byandamongLILCO,LIPASubandLIPA.UponconsummationoftheLIPATransaction,LIPASubwillbemergedwithandintoLILCO,whichwill,bethesurvivingcorporation,foraggregatecashmergerconsiderationof$2,497,500,000(the"Consideration"),theSeriesAAPreferredStockwillbeexchangedforSeriesAApreferredstockoftheHoldingCompanyhavingsubstantiallytheteimsassetforthinAnnexDheretoandeachoutstandingshareoftheSeriesCCPreferredStock,SeriesGGPreferredStock,SeriesQQPreferredStockandSeriesUUPreferredStock(exceptforshareswhose'holdersperfecttheirrightstoobtainjudicialappraisalthereof("DissentingShares"))willbecancelledandconvertedintotherighttoreceivecashintheapplicableamountssetforthintheLIPAAgreement.InconnectionwiththeconsummationoftheLIPATransaction,LILCOwilltransfertotheHoldingCompanyoroneormoreofitswholly-ownedsubsidiaries(whichmaybelimitedliabilitycompanies)allofLILCO'sgasassetsandoperations,non-nucleargeneratingassetsandoperationsandcommonplant(asdescribedmorefullybelow,the"TransferredAssets").ConsummationoftheLIPATransactionissubjecttovarious'conditions,includingapprovaloftheLIPAAgreementbytheholdersoftwo-thirdsofthevotingpoweroftheoutstandingsharesofLILCOCommonStockandLILCOPreferredStock,votingtogetherasasingleclass;byamajorityofthevotingpowerofallholdersofLILCOPreferredStock,votingtogetherasaseparateclass;byamajorityofthevotingpoweroftheoutstandingLILCOCommonStock;votingseparatelyasaclass;andbytheholdersofamajorityofthevotingpowerofeachseriesofLILCOPreferredStock,ineachcasevotingseparatelyasaclass,attheLILCOMeeting.HoldersofsharesofBrooklynUnionCommonStockwillnotvoteontheLIPAAgreement."InconnectionwiththeproposaltoadopttheLIPAAgreement,eachoutst'andingshareofLILCOCommonStockisentitledtoonevote,eachoutstandingshareofLILCOPreferredStockhavingapar,valueof$100pershareisentitledtoonevoteandeachoutstandingshareofLILCOPreferredStockhavingaparvalueof$25pershareisentitledtoone-quarter(i/~)ofavote.Only.holdersofLILCOCommonStockandeligibleLILCOPreferredStockofrecordasofthecloseofbusinessontheRecordDatewillbeentitledtonoticeofandtovoteinrespectoftheLIPAAgreementattheLILCOMeetingoranyadjournmentsorpostponementsthereof.AsofJune23,1997,therewereissuedandoutstanding121,184,527sharesofLILCOCommonStockand21,674,000sharesofLILCOPreferredStock,ofwhich14,520,000weresharesofSeriesAAPreferredStock,570,000weresharesof,SeriesCCPreferredStock,880,000weresharesofSeriesGGPreferredStock,3,464,000weresharesofSeriesQQPreferredStockand2,240,000weresharesofSeriesUUPreferredStock.ThisJointProxyStatement/ProspectusalsoconstitutestheProspectusoftheHoldingCompanywithrespecttothe'ssuance'of(x)upto'approximately173,048,739share'sofHoldingCompanyCommonStocktobeissuedtocommonshareholdersoFLILCOattheapplicableratio(the"Ratio")ofHoldingCompanyCommonStockforeachshareofLILCOCommonStockandtocommonshareholdersofBrooklynUniononaone-to-onebasisinconnectionwiththeCombination(the"BrooklynUnionRatio")and(y)upto14,520,000,sharesofHoldingCompanySeriesAApreferredstock,parvalue$25pershare("HoldingCompanySeriesAAPreferredStock")tobeissuedtoholdersofSeriesAAPreferredStockofLILCOonaone-'to-onebasisinconnectionwiththeLIPAAgreement.TheRatiowillbe(x)'0.803sharesofHoldingCompanyCommonStockforeachshareofLILCOCommonStockiftheCombinationisconsummatedbuttheLIPATransactionisnotconsummated(the"OriginalRatio"),(y)0.880sharesofHoldingCompanyCommonStockforeachshareofLILCOCommonStockiftheCombinationisconsummatedandtheLIPATransactionisconsummated(the"LIPARatio")or(z)oneshareofHoldingCompanyCommonStockforeachshareofLILCOCommonStockiftheCombinationisnotconsummatedbuttheLIPATransactionisconsummated.HoldersofLILCOCommonStockwillown66%,68%or100%,respectively,oftheoutstandingHoldingCompanyCommonStockandholdersofBrooklynUnionCommonStockwillown34%,32%and0%,'res'pectively,oftheoutstandingHoldingCompanyCommonStockinsuchevents.1ThisJointProxyStatement/ProspectusalsorelatestoanindependentproposaltorestructureBrooklynUnionintoaholdingcompanystructure(the"KeySpanShareExchange"),inwhichsharesofBrooklynUnion18 eCommonStockwillbeexchangedforsharesofcommonstock,parvalue$0.33Vspershare("KeySpanCommonStock"),ofKeySpanEnergyCorporation,aNewYorkcorporationandawhollyownedsubsidiaryofBrooklynUnion("KeySpan"),pursuanttoanAmendedandRestatedAgreementandPlanofExchange,datedasofJune9,1997,byandbetweenBrooklynUnionandKeySpan(the"KeySpanAgreement").TheKeySpanShareExchangeisdescribedindetailintheAnnexJtothisJointProxyStatement/ProspectustobedeliveredtoBrooklynUnionshareholders.ConsummationoftheKeySpanShareExchangeissubjecttovariousconditions,includingtheadoptionoftheKeySpanAgreementbytheholdersoftwo-thirdsofthevotingpoweroftheoutstandingsharesofBrooklynUnionCommonStockattheBrooklynUnionMeeting.ThisJointProxyStatement/ProspectusalsoconstitutestheProspectusofKeySpanwithrespecttoissuanceofuptoapproximately50,364,212sharesofKeySpanCommonStocktobeissuedtoholdersofBrooklynUnionCommonStockonaone-to-onebasisinconnectionwiththeKeySpanShareExchange.Unlessotherwisespecified,referencestotherightsairdobligationsofBrooklynUnionundertheBrooklynUnion/LILCOAgreementandtheeffectsoftheCombinationonthesharesofBrooklynUnionCommonStock,respectively,shouldbeinterpretedtorefertotherightsandobligationsofKeySpanuirdertheBroollynUnion'LILCOAgreement,andthesectsoftheCombinationonthesliaresofKeySpanCommon$tockintheeventthattlieKeySpanholdingcoinpanyproposalisapprovedbyBrooklynUnionsliareholdersandtheKeySpanShareExchangeiscompleted.IftheKeySpanSliareExchangeisconsuinmatedandBrooklynUnioncoinmonshareholdersreceiveKeySpanCoinmonStock,KeySpancoinmonshareliolderswill,receivecoinnionsharesofthenewHoldingCompanyuponconsummationoftlieCombination.TheKeySpanShareExchangeisexpectedtobeconsumniatedbeforetheCombination,andneithertheKeySpanSliareExchangenortlieCombinationisconditionedonIheoilieroccurring.AllinformationcontainedinthisJointProxyStatement/ProspectuswithrespecttoLILCOhasbeenprovidedbyLILCO.AllinformationcontainedinthisJointProxyStatement/ProspectuswithrespecttoBrooklynUnionorKeySpanhasbeenprovidedby,BrooklynUnion.NeitherLILCOnorBrooklynUniotiassumesanyresponsibilityfortheaccuracyorcompletenessoftheinformationprovidedbytheotherparty.'hisJointProxyStatement/ProspectusandtheaccompanyingformsofproxyarefirstbeingmailedtoshareholdersofBrooklynUnionandLILCOonoraboutJune30,1997.Ashareholderwhohasgivenaproxymayrevokeitanytimepriortotheapplicablemeeting.See"Meetings,VotingandProxies."19 THEBROOKLYNUNION/LILCOCOMBINATION.~BackgroundoftheCombinationiOverseveralyears,eachofBrooklynUnionandLILCOhasevaluatedthesignificantchangesalreadymadeandexpectedtobemadeintheregulatorystructureandcompetitiveenvironmentofthegasandelectricutilitybusinesses.Atboththefederalandstatelevels,therehavebeenimportantchangesintheregulationoftheutilityindustrybusinessesand,especiallywithrespecttotheelectricutilitybusiness,thereistheprospectoffurtherdramaticchanges.Asdescribedmorefullybelowunder"CommonReasonsfortheCombination,"LILCOandBrooklynUnionbelievethatthecombinationofthecompanieswillprovidebothcompanies'hareholderswiththeopportunitytobenefitfromthecompetitiveopportunitiesprovidedbytherapidlychangingcircumstancesintheenergybusinesswhilealsoprovidin'gthelowerratesandincreasedcompetitionsoughtbythecompanies'egulatorsandcustomers.AstheeffortsofthePublicServiceCommissionoftheStateofNewYork(the"PSC")torestructuretheutilitybusinessinNewYorkfirstbegantotakeshapeinthePSC'sCompetitiveOpportunitiesProceedingin1994,Dr.WilliamJ."Catacosinos,theChiefExecutiveOfficerofLILCO,andMr.RobertB.Catell,theChiefExecutiveOfficerofBrooklynUnion,beganexploratorydiscussionsaimedatdeterminingwhetherabusinesscombinationofLILCOandBrooklynUnioncouldprovideamutually'beneficialplatformforrespondingtothechangesinregulationandtheenergymarketplace.Thosediscussionscontinuedthroughout1994and1995.OnOctober'13,1994,LIPAandtheNewYorkPowerAuthoritymadeajointproposaltoacquiretheoutstandingLILCOCommonStockforacashpurchasepriceof$21.50pershare.ThelastclosingsalespriceforLILCOCommonStockonOctober13,1994,whichwaspriortothereceiptofsuchproposal,was$16'ershare.LILCOadvisedLIPAonOctober24,1994,thatitwaspreparedtoevaluateseriouslythe$21.50pershareproposalmadebyLIPA.TheproposalwassupersededonJune20,1995,byaproposalfromLIPAtoacquirealloftheoutstandingLILCOCommonStockforacashpurchasepriceof$17.50pershare.On'June30,1995,LILCOrespondedbystatingthatsuchofferhadtoomanyuncertaintiesandcontingenciestowarrantfurtherreviewordiscussionsatthattime.NeitheroftheseoffersresultedinnegotiationsbetweenLIPAandLILCO.VTheseoffersweremadebyLIPApursuanttoitsgoverningstatute,TheLongIslandPowerAuthorityAct(the"LIPAAct"),whichgrantedLIPAthestatutorypowertoacquireLILCO'sequityordebtsecuritiesorassetsthroughanegotiatedtransaction,bytenderofferorthroughtheexerciseofLIPA'scondemnationpowers.TheLIPAActhadbeenenactedin1986inresponsetogrowingpoliticaloppositiontoLILCO'sconstructionoftheShorehamNuclearPowerPlant("Shoreham")onLongIsland.In1989,LILCO,LIPAandtheStateofNewYorkenteredintovariousagreementsunderwhichLILCOagreedtotransferitsinterestinShorehamtoLIPA.ShorehamwassubsequentlydecommissionedandLILCOrecordedsubstantialregulatoryassetsreflectingthepresentvalueofexpectedelectricserviceratessettoprovideforLILCO'sfinancialrecoverythroughtheamortizationofsuchregulatoryassets,andareturnonsuchregulatoryassets,overaforty-yearperiod.BrooklynUnionretainedtheinvestmentbankingfirmofMerrillLynch,Pierce,Fenner&,SmithIncorporated("MerrillLynch")inJanuary1995andthelawfirmofWachtell,Lipton,Rosen&KatzinApril1995inordertoassistBrooklynUnioninevaluatingthefinancialandlegalimplicationsofabusinesscombinationwithLILCO,withthepotentialforinvolvementofLIPA.LILCOconsultedwithitslegalandfinancialadvisors,Kramer,Levin,Naftalis&Frankel("KramerLevin")andDillon,Read&Co.Inc.("DillonRead"),eachofwhichhadalreadybeenretainedinconnectionwiththeOctober1994LIPAandtheNewYorkPowerAuthorityproposal.OnOctober24,1995,LILCOandBrooklynUnionexecutedaconfidentialityagreementtofacilitatetheexchangeofnon-publicinformationbetweenthecompanies.Throughout1995,Dr.Catacosinos,Mr.Catell,representativesofDillonReadandrepresentativesofMerrillLynchhadseveralmeetingstodiscussthebasisforabusinesscombination.Representativesofeachcompanymettodiscussthepossiblesynergiesofanysuchcombination.Atvarioustimesduring,1995and1996,20 representativesofLILCOandBrooklynUnionmettodiscussissuesassociatedwithcombiningthetwocompanies,includingrevisionstomanagements'ynergiesestimatesandtheexchangeofnon-publicinformationinconnectionwitheachcompany's"duediligence"investigationoftheother.Meanwhile,Governor-electGeorgePatakiorganizedataskforceonDecember23,1994,toevaluatethefeasibilityofaLIPAtakeoverofLILCOasproposedinOctober1994underthenGovernorMarioGuomo.During1995,theLIPAActwasamendedtoprovideforagoverningboardoftrusteesforLIPAoffifteenmembers,nineappointedbytheGovernorandthreeeachbythemajorityleaderoftheNewYorkStateSenateandbytheSpeakeroftheNewYorkStateAssembly.Inaddition,thatamendmentmadeLIPAsubjecttotheNewYorkStatePublicAuthoritiesControlBoard(the"PACB"),asaresultofwhicheachagreementmadebyLIPA,fortheexpenditureofmorethan$1millionrequiresunanimousapprovalbythe.representativesappointedbytheGovernor,theSenatemajorityleader,,andtheSpeakerofthe,Assembly.PromptlyaftersuchamendmentwassignedintolawonAugust2,1995,the,,LIPAboardoftrusteeswasreconstitutedasprovidedforintheamendment.Asaresultofsuchamendmentandthereportofsuchtaskforce,LIPA'sJune1995proposaltoacquireLILCOfor$17.50persharewasnotpursued.1InSeptember1995,GovernorPatakiannouncedhisadministration'scommitmenttoformulateaStatetakeoverofLILCOthatachievedfourobjectives:adouble-digitreductioninelectricratesonLongIsland;protectionforLongIslandpropertyownersagainstincreasedpropertytaxes;aplanforlong-ter'mcompetitionintheLongIslandelectricma'rket;andtheendofLILCOasLongIsland'selectricutility.GovernorPatakistatedthathewouldnotruleoutanyactionrequiredtoaccomplishtheseobjectives,includingahostileStatetakeoverortheexerciseofLIPA'scondemnationpowers.OnSeptember29,1995,LILCOadvisedLIPAbyletterthatLILCOwouldfullycooperatewithLIPAonany,constructiveproposalmadebyLIPA.,InSeptember1995,LIPAretainedBear,Stearns&Co.Inc.("BearStearns")asitsfinancialadvisorsandinOctober1995retainedthelawfirmsofWinthropStimsonPutnam4RobertsasitscorporatecounselandHawkinsDelafield8cWoodasitsbondcounselandtheaccountingfirmofPriceWaterhouseLLP.AfteranorganizationalmeetinginearlyOctoberbetweenLIPAandLILCOrepresentativesandtheirrespectiveoutsideadvisors,LILCOandBearStearnsexecutedonOctober11,1995,aconfidentialityagreementpursuanttowhich,assubsequentlyamended,non-publicinformationwasprovidedb'yLILCOtospecificLIPAofficialsandLIPA'soutsideadvisors.Duringthefallof1995andthereafterthrough1996and1997,substantialnon-publicinformationwassoprovidedbyLILCO.InSepte'mber'1995,representatives'ofBrooklynUnionmettwicewithrepresentativesofLIPAtooutlineBrooklynUnion'sproposalfortheacquisition'ofLILCO'sgeneratingandregulatoryassetsbyLIPAandthecombinationofBrooklynUnionwiththe'electrictransmissionanddistributionsystemandgasoperationsofLILCO.,OnSepteinber27,'1995,LIPAissuedawritten"RequestforInformation"whichsolicitedindicationsofinterestfromqualifiedpartiesinconnectionwitha"state-authorityfacilitatedfinancialrestructuring/acquisitionofLILCO."AccordingtosuchRequest,LIPAwas"intentonacquiringallorpartofLILCO's'ecuritiesand/orassetsatthelowestpossiblepriceandreservestherighttoacquireLILCOequitysecuritiesbelowcurrenttradingprices."Accordingtopublishedreports,thirty-onepartiesformallyrespondedtothisRequest.OnOctober19,1995,BrooklynUnionsubmittedtoLIPAcertainadditionalinformationsupplementaltoitspresentationatLIPA'sSeptembermeetingsinresponsetotheLIPARequest.NOnDecember5,1995,theProposalEvaluationCommitteeoftheLIPABoardofTrusteesissuedaTechnicalReportwhichrecommendedatransactionstructureunderwhichLIPAwouldacquiresubstantiallyallofLILCO'sassets,sellthegeneratingassetstomultiplebuyers,sellthegasassetstoanotherbuyerandretainaprivateparty.tomanageforLIPA'sbenefitthetransmissionanddistributionsystemsoacquired.AlthoughthisproposalwasneveradoptedbytheLIPABoardofTrustees,andnopricewasdiscussedwithrespecttotheproposedpurchaseofassets,LIPArepresentativesoverthenextfewmonthsdiscussedtheproposalwithLILCO,representatives.OnFebruary28,1996,theLIPABoardofTrusteesauthorizedthecommencementofdiscussionswithLILCOandLIPArepresentativesthereafterbeganfurtherduediligencewithrespecttoLILCO.DuringsuchdiscussionsLILCOrepresentativesidentifiedseveralfeaturesoftheproposalthatwereunacceptabletoLILCO:21 theacquisitionofallofLILCO'soperatingassets;thebreakupofthegeneratingassets;andtheconstraintsthatwouldbeplacedonLILCOwithrespecttothereinvestmentofproceedsinordertoavoidadversetaxconsequences.1OnMarch7,1996,Mr.CatellmetwiththeGovernorandexpressedhissupportfortheGovernor'seffortstodealwiththeLILCOsituationbutindicatedwhatheperceivedtobecertainshortcomingsintheLIPAproposal.=InthewakeofthereleaseoftheTechnicalReport,LILCOandBrooklynUnionrenewedtheirdiscussionswithrespecttoapossiblebusinesscombination.ThetwochiefexecutiveofficersmetonFebruary7,March1andMarch18,1996,todiscussthestructure,pricingandothermaterialtermsofabusinesscombinationandthepotentialinvolvementofLIPAwithrespectthereto.OnApril8,1996,thetwochiefexecutiveofficersmetagain,accompaniedbythecompanies'espectiveinvestmentbankers,todiscussvaluation.OnMay22,1996,thechiefexecutiveofficers,accompaniedbytheirinvestmentbankersandcounsel,mettodiscussstructure,legalissuesandsynergysavings.BrooklynUnionsoughttopersuadeLILCOtoapproachLIPAjointlywithaproposalalongthelinespreviouslysubmittedbyBrooklynUniontoLIPA.LILCOsoughttopersuadeBrooklynUniontoproceedwithaBrooklynUnion-LILCOcombinationagreement.BrooklynUnionandLILCOwereunabletoreachanagreementonpriceorstructure.IVDiscussionscontinuedduringthesunimerof1996andadraftcombinationagreementwaspreparedbyLILCO'soutsidecounselanddeliveredtoBrooklynUniononAugust15,1996.Meetingswereheldbetweenthechiefexecutiveofficers,accompaniedbytheirinvestmentbankers,onAugust6,7and16,1996,andagain,butwithoutinvestmentbankers,onSeptember3,1996,butnoagreementwasreachedoneitherpriceor'corporategovernanceissues.Negotiationsatthatpointweresuspended.Meanwhile,discussionsbetweenLIPAandLILCOduring1996wereinfluencedbya,varietyofdevelopments.,BeginninginMay1996,taxcounselforLIPAandtaxcounselforLILCObeganevaluatinganalternativestructurewhichtheybelievedshouldbemore.taxefficient.ThatstructurecontemplatedapossibleacquisitionbyLIPA,ofLILCOCommonStockimmediatelyfollowingatransferbyLILCOofitsgasandgeneratingassetstoanewcompanytobeownedbyLILCOshareholders.LIPAandLILCOrepresentativeshaddiscussionswiththeIRSconcerningthepossibilityofobtainingprivateletterrulingswithrespecttothisalternativetransactionandthetax-exemptstatusoftherelatedLIPAfinancing.becauseofthecomplexityofthetransaction,substantivediscussionsbetweenthepartieswereslowedduring1996.OnFebruary12,1996,thePSCissuedanordertoshowcausewhyLILCOshouldnotberequiredtoimplementanimmediatereductioninitselectricratesforthethreeyearperiodfrom1997to2000.OnApril17,1996,thatproceedingwasexpandedtoprovideforacomprehensiveevaluationofLILCO's,electricrates.OnAugust2,1996,thePSCstaffformallyrecommendedatemporary5.2%decreaseinLILCO'selectricrates.ThePSCultimatelyhasnottakenactioninconnectionwiththe1996proceeding,whichisstillpending.OnJune24,1996,Moody'sInvestorsServiceInc.announcedthatithaddowngradeditsratingof$1.95billionoutstandingprincipalamountofLILCO'sgeneralandrefundingbondsfromBaa3toBal,citing"intenseregulatoryscrutiny"ofLILCO'selectricratesbythePSCandtheuncertaincourseofthenegotiationsbetweenLIPAandLILCO.AnothersignificantdevelopmentaffectingthosenegotiationswasadecisiononNovember4,1996,inPhaseIIofataxcertiorariproceedingbroughtbyLILCOagainstcertaintaxingjurisdictionsinSuffolkCounty,LongIsland,seeking'recoveryofpropertytaxespaidbyLILCOinrespectofShoreham.DuringPhaseI,LILCOhadbeenawarded$81millioninrefundsandinterest.ThePhaseIIdecision,whilesubjecttoappealbythe,defendants,ruledinLILCO'sfavorandcouldresultinanaggregaterecoveryinexcessof$1billionforLILCO(whichamountwouldbeusedtoreduceelectricrates).LILCOperceivedthisdecisionasputtinggreaterpressureonLIPAtoagreeonatransactionwithLILCOwhichwouldincludeasettlementoftheShorehampropertytaxcase.'2 Finally,variousNewYorkStateofficialsandrepresentatives,indiscussionswithDr.CatacosinosandMr.Catell,encouragedLILCOandBrooklynUniontorecommencetheirnegotiationsafterreportswerepublished,inSeptember1996disclosingtheterminationofthosenegotiationsinSeptember1996,Dr.CatacosinosandMr.CatellunderstoodfromthesediscussionsthattheStatewouldviewanagreementbetweenLILCOandBrooklynUnionfavorablysinceitwouldresultinratereductionsfromthesynergiestoberealizedinabusinesscombinationofLILCOandBrooklynUnion.Accordingly,discussionsbetweenthechiefexecutiveofficersofLILCOandBrooklynUnionbeganagainonDecember4,1996,and,aftermeetings(whichincludedtheinvestmentbankers)onDecember11,13and20,thechiefexecutiveofficersagreedtopursuethenegotiationsofadefinitiveagreementbaseduponanexchangeratiothatwouldresultinLILCOshareholdersowning66%,andBrooklynUnionshareholdersowning34%,ofthecommonequityofthecombinedentityintheabsenceofamutuallyacceptabletransactionwithLIPAand68%and32%,respectively,ifasatisfactorytransactionwithLIPAwereconsummated.Theadvisorsforbothpartiesmetandspokeseveraltimesoverthenextweek,discussedthetransactionandrelateddocumentation,agreedupontheproposedstructureforthetransactionandnegotiatedthetermsofanAgreementandPlanofExchange(the"OriginalAgreement"),theLILCOStockOptionAgreementbetweenLILCOandBrooklynUnion,datedasofDecember29,1996(the"LILCOStockOptionAgreement")andtheBrooklynUnionStockOptionAgreementbetweenBrooklynUnionandLILCO,datedasofDecember29,1996(the"BrooklynUnionStockOptionAgreement",and,togetherwiththeLILCOStockOptionAgreement,the"StockOptionAgreements"),includingtheconditionstoclosing,theterminationprovisions,thebreak-upfees,thecovenantsthatwouldgoverntheoperationsofLILCOandBrooklynUnionpendingtheclosingandvariousothermattersthatwouldgoverntheoperationsoftheHoldingCompanyaftertheclosing.ThepartiesalsonegotiatedaprovisionthatcontemplatedarevisionintheexchangeratioifatransactionwithLIPAacceptabletoeachpartycouldbenegotiated.OnDecember24andDecember27,1996,thechiefexecutiveofficersmetagaintonegotiate'heprovisionsrelatingtomanagementsuccessionandthecompositionoftheHoldingConipany'sBoardofDirectors.FinalagreementwithrespecttosuchissueswasreachedonDecember28,1996.IOnDecember29,'1996,theLILCOBoardofDirectorsmetandre'ceivedadvicefromDillonRead,legalcounselandmanagemerit.DillonReadreviewedfinancialandotherinformationconcerningthetwocompaniesandtheproposedOriginalRatio.DillonReadthendelivereditsoralopiniontotheLILCOBoardofDirectorsthat,asofsuchdateandsubjecttothemattersdiscussed,theproposedOriginalRatioof0.803sharesofHoldingCompanyCommonStockforeachshareofLILCOCommonStockwasfair',fromafinancialpointofview,totheholdersofLILCOCommonStock.Counseloutlinedin"detailthetermsandconditions'oftheOriginalAgreementandtheStockOptionAgreementsanddescribedthechangesintheproposeddefinitivedocumentationfromthedraftspreviouslyfurnishedtotheLILCOBoard.ofDirectors.TheLILCOBoardofDirectorsdiscussedtheadvicetheyhadreceivedandtliepotentialbenefitstotheshareholders,customersandemployeesofLILCOthatwouldresultfromacombinationofLILCOandBrooklynUnion.Aftersuchdiscussion,theLILCOBoardofDirectorsunanimouslyapprovedtheOriginalAgreementandtheStockOptionAgreements.AlsoonDecember29,1996,theBrooklynUnionBoardofDirectorsmetandreceivedadvicefromMerrillLynch,legalcounselandmanagement.MerrillLynchreviewedfinancialandotherinformationconcerningthetwocompaniesandtheproposedBrooklynUnionRatio.MerrillLynchthendelivereditsoralopiniontotheBrooklynUnionBoardofDirectorstotheeffectthat,asofsuchdateandsubjecttothemattersdiscussed,theproposedBrooklynUnionRatiowasfair,fromafinancialpointofview,totheholdersofBrooklynUnionCommonStock.CounseloutlinedindetailthetermsandconditionsoftheOriginalAgreementandtheStockOptionAgreementsanddescribedthechangesintheproposeddefinitivedocumentationfromthedraftspreviouslyfurnished'totheBrooklynUnionBoardofDirectors.The,BrooklynUnionBoardofDirectorsdiscussedtheadvicetheyhadreceivedandthepotentialbenefitstotheshareholdersandcustomersofBrooklynUnionthatwouldresultfromacombinationofLILCOandBrooklynUnion.Aftersuchdiscussion,theBrooklynUnionBoardofDirectorsunanimouslyapprovedtheOriginalAgreementandtheStockOptionAgreements.,23 Aftertheseboardmeetings,theOriginalAgreementandtheStockOptionAgreementsweresigned.RenewednegotiationswithLIPAcommencedinJanuary1997.FromthatdateuntilMarch19,1997,LIPA,LILCOandBrooklynUnion,throughtheirofficersandoutsideadvisors,conductedextensivenegotiations.DuringthisperiodandthroughMay1997,LIPAanditsadvisorsconductedextensiveduediligenceinvestigationsofLILCO'sfinancial,legalandbusinessrecords,includinginterviewswithLILCOpersonnel.ThenegotiationsfocusedonatransactionstructureinwhichcertainassetsofLILCO,includingitsgas,generatingandcommonplantassets,wouldbetransferredtoanewcompanytobeownedbyLILCOandBrooklynUnionshareholdersimmediatelypriortoacashmergerofLILCOwithanacquisitionsubsidiarytobeformedbyLIPA,asaresultofwhichLILCOwouldbecomeawholly-owned'subsidiaryofLIPA.TheprincipalissuesduringthenegotiationsweretheidentificationoftheassetstobedistributedbyLILCO,thepricetobepaidbyLIPA,thetreatmentofLILCO'spreferredstockanddebt,thetermsandconditionsofamanagementservicesagreement,apowersupplyagreementandotherserviceagreementstobeenteredintobyLILCOwiththenewcompanyandtherightsLIPAwouldhavetoacquirethegeneratingfacilitiesandtodevelopcertainrealestateparcelsforfuturegenerating,transmissionanddistributionfacilities.Inaddition,thenegotiationsincorporatedLIPA'sacquisitionofLILCO'scurrentrightsintheShorehampropertytaxandrelatedcasesandcertainprovisionsrelatingtootherpendingandfuturepropertytaxcasesandtheanticipatedLIPAsettlementofthesecasesafterclosing.'hesenegotiationsculminatedinameetingonMarch18,1997,attendedbyDr.Catacosinos,otherLILCOofficersandrepresentativesofDillonRead,thethencurrentChairmanofLIPA,otherLIPAofficialsandrepresentativesofBearStearns,andMr.CatellandrepresentativesofMerrillLynch,Atthatmeeting,the'finalpricingtermsfortheacquisitionbyLIPAofLILCOwereagreedtoandsubstantiallyfinaltermsforthemanagementservicesandrelatedagreementswereagreedtoimmediatelythereafter.Theseagreementsweredocumentedinanon-bindingAgreementinPrinciple,datedasofMarch19,1997,amongLIPA,LILCOandBrooklynUnion.Thepartiesandtheirrespective.outsideadvisorsthenpreparedandnegotiatedthedefinitivelegaldocumentationcontemplatedbytheAgreementinPrinciple,Theresultingdraftsweresubmitted,unsigned,onApril30,1997,tothestaffofthePACBtopermitthemtobegintheirevaluationoftheproposedtransaction.ThepartiesheldfurthernegotiationswithrespecttothedefinitivelegaldocumentationduringMayandJune.DuringthisperiodLIPAconductedaseriesofpublichearingsatwhichthecontentsoftheApril30thdraftswerediscussed.OnJune16,1997,theLIPABoardofTrusteesauthorizedtheexecutionbyLIPAofthethencurrentdraftsofthedefinitivelegaldocumentation.Asaresultofsubsequentnegotiationsamongtheparties,certaintcchnicalchangesweremadetosuchdrafts.InaccordancewiththeresolutionadoptedbytheLIPABoardofTrusteesattheirJune16thmeeting,thechangesnegotiatedafterJune16remainsubjecttoratificationbytheLIPABoardofTrustees.OnJune26,1997,MerrillLynchdelivereditswrittenopiniontotheBrooklynUnionBoardofDirectorstotheeffectthat,asofsuchdateandsubjecttothemattersdescribedtherein,theBrooklynUnionRatioofoneshareofHoldingCompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStockI'romafinancialpointofviewiftheLIPATransactionwereconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.880sharesofHoldingCompanyCommonStock.HavingdiscussedatanumberofmeetingsthebenefitsthatwouldresultfromtheconsummationoftheLIPATransactionandhavingreceivedadvicefromMerrillLynch,legalcounselandmanagement,andhavingreceiveddraftsanddetaileddescriptionsoftheBrooklynUnion/LILCOAgreement,theAmendedStockOptionAgreements(asdefinedbelow)andtheLIPAAgreement,theBrooklynUnionBoardofDirectorsexecutedaunanimouswrittenconsentdatedJune26,1997approvingtheBrooklynUnion/LILCOAgreementandtheAmendedStockOptionAgreements.OnJune26,1997,LILCOandBrooklynUnionexecutedanddelivered'heBrooklynUnion/LILCOAgreement,pursuanttowhichBrooklynUnionconsentedtothe'executionbyLILCOoftheLIPAAgreement.LILCOandBrooklynUniononJune26,1997,alsoexecutedanAmendedandRestatedBrooklynUnionStockOptionAgreemcntandanAmendedandRestatedLILCOStockOptionAgreement(collectively,the"AmendedStockOptionAgreements").AsofJune26,1997,LIPAa'ndLILCOexecutedtheLIPAAgreement.24 CommonReasonsfortheCombinationBrooklynUnionandLILCObelievethatthecombinedcompany,itsshareholdersanditscustomerscanbenefitsignificantlyfromthestrategicbenefitswhichtheyexpecttoresultfromtheCombination,whichincludethefollowing:~CustomersofBrooklynUnionandLILCOshouldrealizelowerratesasaresultofthesubstantialsynergysavingsanticipatedtoberealizedthroughthecombinationofthecompanies'perationsand,iftheLIPATransactionisconsummated,electriccustomersshouldrealizesubstantiallylowerratesasaresultofLIPA'sexemptionfrompaymentoffederalincometaxanditsrefinancingofLILCO'sdebtwithtax-exemptfinancing.~Thegreaterfinancialandoperationalresourcesavailabletothecombinedcompanyshouldcreateastrongercompetitorinthecontinuingdevelopmentofacompetitiveenergymarketplace.~Shareholdersofbothcompanieswillhavetheopportunitytoparticipateintheupsidepotentialoftheconvergenceofgasandelectriccompanieswithintheenergyindustry.Thecombinedcompanyisexpectedtocreateaplatformtomarket,tradeandarrangephysicaldeliveryofenergyproductsandrelatedpervicesonalargescaletomajormarketareas.4BycombiningthebusinessesofBrooklynUnionandLILCOasseparatesubsidiariesownedbyaholdingcompany,thecombinedcompanyshouldbenefitfromgreaterIlexibilityinconductingandfinancingnon-regulatedoperationsthaniscurrentlyavailabletoeitherBrooklynUnionorLILCO.ThecombinedcompanyshouldalsohavegreaterfiexibilitytoinvestinnewlinesofbusinessthaniscurrentlyavailabletoeitherBrooklynUnionorLILCO.WithgreaterIlexibilitytoraiseandcommitcapitaltounregulatedoperationsintheenergybusiness,thecombinedcompanywillbebetterpositionedtotakeadvantageofthemarketopportunitiespresentedintheincreasinglycompetitiveenergyindustry.BrooklynUnionandLILCObelievethatthesestrategicbenefitswillbefurtherenhancedthroughconsummationoftheLIPATransaction.Theestimatednetproceedsofapproximately$1.7billionwillprovidetheHoldingCompanywithsubstantialfinancialresourceswhichBrooklynUnionandLILCOanticipatewillbeusedinparttomakeacquisitionstliatwillcomplementtheoperationsoftheHoldingCompany.Particularlyinlightofthesignificantproposedrestructuringsandacquisitionsannouncedbyexistingutilities,theHoldingCompanyshouldbewellpositionedfinanciallytotakeadvantageoftheincreasedopportunitieswhicharelikelytobepresentedoverthenextseveralyearstoexpanditsbusiness.NodeterminationwithrespecttosuchacquisitionopportunitieshasyetbeenmadebyeitherBrooklynUnionorLILCO.RecommendationoftheLILCOBoardofDirectorsTheLILCOBoardbelievesthatthetermsofeachoftheCombinationandtheLIPATransactionarefairto,andinthebestinterestsof,LILCOanditsshareholders.Accordingly,theLILCOBoard,byaunanimousvote,hasadoptedtheBrooklynUnion/LILCOAgreementandtheLIPAAgreement,andunanimouslyrecommendstheadoptionofeachbytheLILCOshareholders.TheLILCOBoardbelievesthateachoftheCombinationandtheLIPATransactionrepresentsasignificantstrategic,opportunityforLILCO.ThetermsoftheBrooklynUnion/LILCOAgreement,includingtheRatios,weretheresultofarm'-lengthnegotiationsbetweenBrooklynUnionandLILCO.InfixingtheRatiosinthenegotiationprocess,LILCOmanagementreliedtoalargeextentonthefinancialanalysesofDillonReadsetforthbelowunder"OpinionofLILCO'sFinancialAdviser."TheLILCOBoardconsultedwithitsfinancialadvisorandlegaladvisorsandmanagementofLILCO.Aftercarefulreviewandconsideration,theLILCOBoarddeterminedthattheCombinationisadesirabletransactionfromthestandpointoftheLILCOcommonshareholders.CInreachingitsdecisiontoapprovetheBrooklynUnion/LILCOAgreement,theLILCOBoardconsideredthefollowingfactors:(i)thecurrentandhistoricalmarketpricesoftheBrooklynUnionCommonStockandthe LILCOCommonStock(includingthefactthattheclosingpricesofBrooklynUnionCommonStockandLILCOCommonStockonDecember26,1996were$30.625and$19.125,respectively;(ii)informationconcerningthefinancialperformance,condition,businessoperationsandprospectsofeachofBrooklynUnionandLILCO;(iii)theeffectsoftheCombinationonLILCO'sshareholders,includingthesignificantpremiumtoLILCO'sthencurrentmarketpricerellectedintheratioandtheopportunitytoshareintheanticipatedbenefits'ofownershipofthecombinedenterprise;(iv)theexpectedfederalincometaxtreatmentoftheCombinationasataxableexchangetoshareholdersunlesstheLIPAAgreementisterminatedpriortotheconsummationoftheCombination(asdescribedunder"Fe'deralIncomeTaxConsiderations-MaterialFederalIncomeTaxConsequences");(v)theimmediatereductioningasandelectricratestoreflectanticipatedsynergy'savings,ascontemplatedbyBrooklynUnionandLILCO,andthebeliefthatcustomerswillbenefitfromabroaderrangeofinnovativeenergyproductsandservices;(vi)tlietermsoftheBrooklynUnion/LILCOAgreement,whichprovideforbalancedrepresentationsandwarranties,conditionstoclosingandrightstotermination;and(vii)theopinionofLILCO'sfinancialadvisor,DillonReadthat,asofthedatethereofandbaseduponthefactorsandassumptionsdescribedinsuchopinion,theOriginalRatiowasfairfromafinancialpointofviewtotheholdersofsharesofLILCOCommonStock.IndeterminingthattheCombinationisfairtoLILCO'sshareholders,theLILCOBoardconsideredtheabovefactorsasawholeanddidnotassignspecificorrelativeweightstothem.IntheviewoftheLILCOBoard,eachofthefactorslistedabovereinforceditsbeliefthatthecombinedentitywouldhaveexcellentbusinessprospectsgoingforward.BecauseLILCO'sshareholderscollectivelywouldownapproximately66%(or68%iftheLIPA,Transactionisconsummated)ofthecombinedentitybased'ponthecapitalizationofthecompaniesasofDecember29,1996,thedateoftheOriginalAgreement,theprospectsofsuchentitywereanimportantfactortotheLILCOBoardindeterminingwhetherfoapprovethetrarisaction.InreachingitsdecisiontoapprovetheLIPAAgreement,theLILCOBoardconsideredthefollowingfactors:(i)thepurchasepricepayablepursuanttotheLIPAAgreementcloselyapproximatesthebookvalueoftheassetstobeownedbyLILCOatthetimeoftheLIPAClosing;(ii)LILCOshareholderswillcontinuetoownanequityinterestinthegeneratingfacilitiesandcommonplantcurrentlyownedbyLILCO,aswellasitsgasoperations(ivhichhaveenjoyedsignificantrevenueandearningsgrowthinrecentyears);(iii)consummationoftheLIPATransactionisexpectedtoresultinsubstantialelectricratedecreaseswhicharenotobtainablethroughanyothermeans;(iv)thesaleofLILCO'sShoreham-relatedregulatoryassets,whichLILCObelieveswouldhaveafavorableimpactontheHoldingCompany'screditra'tingandthetradingvalueofitsequitysecurities;(v)thestructureoftheLIPATransactionincludeslong-termserviceagreementspursuaiittowhichsub'sidiariesoftheHoldingCompanywillmanageonbehalfofLIPAtheday-to-dayoperationofthetransmissionanddistributionsystemonLongIslandandtherebypromotethecontinuedreliabilityofthatsystem(includingtheabilitytousetheHoldingCompany'sentireworkforceinanintegratedfashiontoassistinrestoringserviceaftermajorstorms);(vi)thepreservationof,LILCO'scurrentworkforcewithoutlayoffs;(vii)theexpectedfederalincometaxtreatmentoftheLIPATransaction(asdescribedunder"FederalIncomeTaxConsiderations-.MaterialFederalIncomeTaxConsequences");(viii)BrooklynUnion'sconsentto,andsupportfor,theLIPATransaction;(ix)theincreaseintheRatioofHoldingCompanyCommonStockissuableintheCombinationforeachshareofLILCOCommonStockfrom0.803to0.880(andtheresultingincreaseofHoldingCompanyCommon'StocktobeownedbyLILCOshareholdersfromapproximately66%to'approximately68%);(x)theferinsoftheLIPAAgreement,whichprovideforreasonablerepresentationsandwarrantiesandrightstotermination;(xi)thesupportfortheLIPATransactionexpressedpubliclybyseniorNewYorkStateofficialsandrepresentatives;and(xii)theopinionofDillonReadthat,asofthedatethereofandbaseduponthefactorsandassumptionsdescribedinsuchopinion,theConsiderationtobereceivedpursuanttotheLIPAAgreementwasfairfromafinancialpointofviewtoLILCO.TheLILCOBoardconsideredthefactthatconsummatingtheLIPATransactionwouldhavetheeffectofmakingtheCombinationtaxabletoLILCOshareholders,butdeterminedthattheoverallbenefitsanticipatedtobereceivedfromtheLIPATransactiono'utweighedthedetrimentassociatedwiththecreationofataxliabilityonLILCOshareholders.IndeterminingthattheLIPATransactionisfairtoLILCO'sshareholders,theLILCOBoardconsideredtheabovefactorsasawholeanddidnotassignspecificorrelativeweightstothem.IntheviewoftheLILCOBoard,eachofthefactorslistedabovereinforceditsbeliefthatsuchtransactionwasfair.BecauseLILCO'sshareholderscollectivelywouldownapproximately68%oftheHoldingCompany(baseduponthecapitalizationofLILCOandBrooklynUnionasofDecember29,1996)assumingtheCombinationis26' alsoconsummated(or,100%oftheHoldingCompanyifonlytheLIPATransactionisconsummated),the'prospectsoftheHoldingCompanyineacheventualitywereanimportantfactortotheLILCOBoardindetertniningwhethertoapprove.'thetransaction.THE,LILCOBOARD,BYUNANIMOUSVOTE,HASADOPTEDEACHOFTHEBROOKLYNUNION/LILCOAGREEMENTANDTHELIPAAGREEMENT,BELIEVESTHATTHETERMSOFBACHOFTHECOMBINATIONANDTHELIPATRANSACTIONAREFAIRTOLILCO'SSHAREHOLDERSANDUNANIMOUSLYRECOMMENDSTHATTHESHAREHOLDERSOFLILCOVOTETOADOPTEACHOFTHEBROOKLYNUNION/LILCOAGREEMENTANDTHELIPAAGREEMENT.InconsideringtheserecommendationsoftheLILCOBoard,shareholdersshouldbeawarethatcertainmembersofLILCO'smanagementandtheLILCOBoardhavecertaininterestsintheCombinationthataredifferentfrom,orinadditionto,theinterestsofsliareholdersofLILCOgenerallyandthatcouldpotentiallyrepresentconflictsofinterest.TheLILCOBoardwasawareoftheseinterestsandconsideredthem,amongothermatters,inadoptingtheBrooklynUnion/LILCOAgreement.See"-PotentialConflicts,ofInterestsofCertainPersonsintheBindingShareExchanges."FortherecommendationoftheBrooklynUnionBoard,See"SelectedInformationConcerningBrooklynUnion-RecommendationoftheBrooklynUnionBoard"."OpinionofLILCO'sF<lnanclalAdvisorOnDecember29,1996,theLILCOBoardreceivedthewrittenopinionofDillonReadthat,asofthedateoftheopinion,theOriginalRatiowasfairfromafinancialpointofviewtotheholdersofLILCOCommonStock.ThcfulltextofDillonRead'sopiniondatedDecember29,1996,whichdescribestheassumptionsmade,mattersconsideredandlimitsonthereviewundertaken,isattachedheretoasAnnexFtothisJointProxyStatement/Prospectusandisincorporatedhereinbyreference.DillonRead'sopiniondoesnotconstitutearecommendationtoanyholderofLILCOCommonStockastohowsuchholdershouldvoteattheLILCOMeeting.HoldersofLILCOCommonStockareurgedtoreadtheopinioninitsentirety.IInarrivingatitsopinion,DillonReadhas,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtoLILCOandBrooklynUnion;(ii)reviewedcertainfinancialforecastsandotherdataprovidedtoDillonReadbyLILCOandBrooklynUnionrelatingtothebusinessandprospectsofLILCOandBrooklynUnion;(iii)conducteddiscussionswithmembersoftheseniormanagementofLILCOwithrespecttothebusinessaudprospectsofLILCO;(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbuSinessDillonReadbelievedtobegenerallycomparabletothoseofLILCOandBrooklynUnion;(v)reviewedthehistoricalmarketpricesandtradingvoltnnesofLILCOCommonStockandBrooklynUnionCommonStock;(vi)comparedtheproposedfinancialtermsoftheCombinationwiththefinancialtermsofcertainother'transactionswhichDillonReadbelievedtobcgenerallycomparabletotheCombination;(vii)analyzedtherespectivecontributionsintermsofrevenue,earnings,cashflowandcommonequityofLILCOandBrooklynUniontothecombinedcompany,andtherelativ'eownershipoftheHoldingCompanyaftertheCombinationbythecurrentholdersofLILCOCommonStockandBrooklynUnionCommonStock;(viii)consideredtheproformaeffectoftheCombinationonLILCO'scapitalizationratios,earnings,cashflowandbookvaluepershare;(ix)reviewedtheOriginalAgreement;and(x)conductedsuchotherfinancialstudies,analysesandinvestigations,andconsideredsuchotherinforination,aswasdeemednecessaryorappropriate.r0Inconnectionwithitsreview,DillonReaddidnotassumeanyresponsibilityforindependentverificationofanyoftheforegoinginformationandrelied,withtheconsentofLILCO,onsuchinformationbeingcompleteandaccurateinallmaterialrespects.Inaddition,DillonReaddidnotmakeanyindcpcndentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)ofLILCOorBrooklynUnionoranyoftheirrespectivesubsidiaries,norwasDillonReadfurnishedwithanysuchevaluationorappraisal.XVithrcspccttothefinancialforecastsreferredtoabove,DillonRead,withLILCO'sdirection,assumedthattheyhadbeenreasonablypreparedonbasesreflectingthebestcurrentlyavailableestimatesandjudgmentsofLILCO'sandBrooklynUnion'smanagementastothefuturefinancialperfonnanceofeachcompany.ForitsDecember29,27 1996opinion,DillonRead'sreviewofBrooklyriUnion'scurrentandanticipatedfutureoperations,financialconditionandprospectswasbasedentirelyonpublicinformation(exceptforcertainlimitedinternalprojections'eferredtoabove),andwasthereforelimitedinscope.DillonReaddidnotholddiscussionswithanymembersofBrooklynUnion'ssenior,managementinconnectionwithitsDecember29,1996opinion.DillonReadassumed,initsDecember29,1996opinion,thetransactionwouldbetreatedastax-freetobothLILCOandholdersofLILCOCommonStockandwouldbeaccountedforasapoolingofinterests.Further,DillonRead'sopinionwasbasedoneconomic,monetary,andmarketconditionsexistingonthedatethereof.TheOriginalRatioandtheLIPARatioweredeterminedthrougharm'-lengthnegotiationsbetweenLILCOandBrooklynUnion.LILCOdidnotplaceanylimitationsuponDillonReadregardingtheprocedurestobefollowedorfactorstobeconsideredinrenderingitsopinion.DillonReadhasnotbeenrequestedtosolicit,norhasitsolicited,offersforLILCOfromthirdparties.Inconnectionwithrenderingitsopinion,DillonReadconsideredavarietyofvaluationmethodswhicharesummarizedbelow.ThefollowingsummarydescribestheanalysesperformedbyDillonReadinthisregardandiscompleteinallmaterialrespects.StockTradingHistory.DillonReadreviewedtheperformanceofthepersharemarketpriceofLILCOCommonStockandBrooklynUnionCommonStockovertheperiodfromDecember31,1993toDecember24,1996.DillonReadalsocalculatedtheratioofthepersharemarketpriceofLILCOCommonStocktothepersharemarketpriceofBrooklynUnionCommonStockovertheperiod.Thisanalysisshowedthatovertheperiod,"LILCOCommonStocktradedataratioashighas0.927andaslowas0.560comparedtothepriceofBrooklynUnionCommonStock.ThisanalysiswasutilizedtoprovidehistoricalperspectiveforthemannerinwhichthepublictradingmarkethadvaluedLILCOandBrooklynUnionrelativetoeachother.ContributionAnalysis.DillonReadcalculatedthecontributionofeachofLILCOandBrooklynUniontotheHoldingCompanywithrespecttooperatingrevenues,operatingcashflow(earningsbeforeinterest,taxes,depreciationandamortization,"EBITDA"),netincome,cashflowfromoperations(definedascashprovidedbyoperatingactivitiesbeforechangesinworkingcapital),projectedyear2000netincome,netproperty,plant,andequipment,"totalassets,totaldebt,bookvalueofcommonequity,totalcapitalization,netdebt(definedastotaldebtlesscashequivalents),andnetbookcapitalization(definedasbookcapitalizationlesscashequivalents)forthelatesttwelvemonthperiodorasofthelatestbalancesheetdate.Inaddition,'illonReadcalculatedtherelativevaluationcontributionofeachofLILCOandBrooklynUniontotheHoldingCompanywithrespecttothemarketvalueofcommonequityasofDecember24,1996,themarketvalueofcommonequityasofOctober3,1996(oneweekpriortothepublicationofreportswhichsuggestedthatatakeoverofLILCObyLIPAwouldneedtobeinitiatedbyyear-end1996tobesuccessful),thecomparablecompanytradinganalysisvaluation,andthediscountedcashflowanalysisvaluation.ThesecalculationsyieldedamountsreflectingLILCO'scontributionrangingfrom59.9percentto88.4percentofthetotalproformacombinedamount.BasedontheOriginalRatioof0.803,theholdersofLILCOCommonStockwillownapproximately66percentofHoldingCompanyCommonStock.BasedontheLIPARatioof0.880,theholdersofLILCOCommonStockwillownapproximately68per'centofHoldingCompanyCommonStock.ComparableCompanyTradingAnalysis.Usingpubliclyavailableinformation,DillonReadcompared,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchasnetincome,projectednetincome,(medianearningspershareestimatesfor1996,1997and1998reportedbyInstitutionalBrokersEstimateSystemorbasedonInstitutionalBrokersEstimateSystemestimatesandexpected5-yearearningspersharegrowthratesfromZacksInvestmentResearch,Inc.),revenues,earningsbeforeinterestandtaxes("EBIT"),EBITDA,cashflowfromoperationsandthebookvalueofcommonequityofLILCOandBrooklynUniontocertainothercompanieswhich,inDillonRead'sjudgment,weregenerallycomparabletoLILCOandBrooklynUnionforthepurposeofthisanalysis.ThefactorsDillonReadconsideredinselectingcompaniesforcomparisonincludedsize,geographiclocation,financialconditionandscopeofbusinessoperations.ForLILCO,thecompaniesusedinthecomparisonconsistedofConsolidatedEdisonCompanyofNewYork,Inc.,NewYorkStateElectric0GasCorporation,NewEnglandElectricSystem,NortheastUtilities,PublicServiceEnterprise28 GroupIncorporated,andRochesterGasandElectricCorporation.ForBrooklynUnion,thecompaniesusedinthecomparisonconsistedofAGLResources,Inc.,MCNEnergyGroup,lnc.,NICORInc.,PeoplesEnergyCorporation,andWashingtonGasLightCompany.Equitymarketvalues(definedasthemarketpricepercommonsharemultipliedbytheoutstandingnumberofcommonshares)asamultipleofeachoftheindicatedstatisticsforLILCOandBrooklynUnion,respectively,wereasfollows:(i)latest12-monthnet.income-8.8xand17.1x;(ii)projectedoractual1996netincome-9.0xand17.1x;(iii)projected1997netincome-8.8xand14.6x;(iv)projected1998netincome-8.7xand13.4x;(v)latest12-monthcashflowfromoperations-2.6xand7.6x;and(vi)bookvalueofcommonequityonSeptember30,1996-0.91xand1.70x.Netmarketcapitalizations(definedasequitymarketvalueplusthebookvalueofdebtandpreferredstocklesscashandcashequivalents)asamultipleofeachoftheindicatedstatisticsforLILCOandBrooklynUnion,respectively,wereasfollows:(i)latest12-monthrevenues-2.4xand1.6x;(ii)latest12-monthEBITDA-6.1xand9.2x;and(iii)latest12-monthEBIT-8.0xand13.5x.ThiscomparisonwasusedtoprovideaperspectiveonthepresentmarketvaluationofeachofLILCOandBrooklynUnion.Therangeandmeanfortheequitymarketvalue'asamultipleofeachoftheindicatedstatisticsforthegroupsofcomparablecompaniesforLILCOandBrooklynUnion,respectively,wercasfollows,(i)latest12-monthnetincome:forLILCOcomparables-7.9xto11.4xwithameanof10.0x;forBrooklynUnioncomparables-Il.lxto17.4xwithameanof15.4x;(ii)projectedoractual1996netincome:forLILCOcomparables-8.3xto18.3xwithameanof11.1x;forBrooklynUnioncomparablcs-Il.lxto17.8xwithameanof15.6x;(iii)projected1997netincome:forLILCOcomparables-8.2xto10.7xwithameanof9.7x;forBrooklynUnioncomparables-13.3xto16.0xwithameanof14.5x;(iv)projcctcd1998nctincome:forLILCOcomparables-7.9xto10.5x'withameanof9.5x;forBrooklynUnioncomparablcs-12.5xto14.7xwithameanof13.6x;(v)latest12-monthcashflowfromoperations:forLILCOcomparables-2.0xto5.9x,withameanof4.2x;forBrooklynUnioncomparables-6.0xto7.8x,withameanof7.0x;and(vi)bookvalueofcommonequityonSeptember30,1996:forLILCOcomparables-0.70xto1.33xwithameanof1.04x;forBrooklynUnioncomparables-1.70xto2.65xwithameanof2.06x.TherangeandmeanfornetmarketcapitalizationasamultipleofeachofthcindicatedstatisticsforthegroupsofcomparablecompaniesforLILCOandBrooklynUnion,respectively,wercasfollows:(i)latest12-monthrevenues:forLILCOcomparables-1.4xto2.1xwithameanof1.7x;forBrooklynUnioncomparables-1.4xto1.8xwithaincanof1.6x;(ii)latest12-monthEBITDA:forLILCOcomparables-4.7xto6.5xwithameanof5.6x;forBrooklynUnioncomparables-6.7xto9.6xwithameanof8.0x;and(iii)latest12-month'EBIT:forLILCOcomparables-6.9xto10.2xwithameanof8.4x;forBrooklynUnioncomparables-8.5xto15.8xwithameanof11.8x.ThecomparablecompanytradinganalysisisavaluationmethodusedbyDillonReadtodeterminewhetherLILCOorBrooklynUnionwerereasonablyvaluedatexistingmarketpricesinrelationtosimilarcompaniesandinrelhtiontoeach'other.DillonReadconcludedthatbothLILCOandBrooklynUnionwercreasonablyvaluedatexistingmarketpricesinrelationtosimilarcompaniesandinrelationtoeachother.DillonReadbelievesthatthisanalysissupportsDillonRead'sviewthattheOriginalRatiowasfairtotheholdersofLILCOCommonStockfrom=afinancialpoint.ofview.ComparableUtilityTransactionsAnalysis.Usingpubliclyavailableinformation,DillonReadcomparedcertaintermsofmergerssimilartothetransactionbetweenLILCOandBrooklynUnion.DillonReadcomparedtherelativeownershipandmarketpremiuminrecentutilitymergers-of-equalstransactionsandelectric/gasutilitycombinationswhichinDillonRead'sjudgmentwerecomparabletotheCombinationforthepurposeofthisanalysis.Themerger-of-equalstransactionswhichwereanalyzedincludedonecomplctcdtransaction(MidwestResourcesInc.andIowa-IllinoisGas&ElectricCompany)andfourpendingtransactions(DelmarvaPower&LightCompanyandAtlanticEnergyInc.;BaltimoreGas&ElectricCompanyandPotomacElectricPowerCompany;Public.ServiceCompanyofColoradoandSoulhwesternPublicServiceCompany;andNorthernStatesPowerCompanyandWisconsinEnergyCorporation).Thcelectric/gasutilitycombinationswhichwereanalyzedincludedfivependingtransactions(PugetSoundPower&,LightCompanyandWashingtonEnergyCompanyInc.;DukePowerCompanyandPanEnergyCorp.;EnovaCorporationandPacificEntcrpriscsInc.;HoustonIndustriesIncorporatedandNorAmEnergyCorp.;andEnronCorp.andPortlandGeneralCorporation).,29 Withrcspccttorelativeownership,incomparablemergers-of-equalstransactions,thelargercompanyineachmergerreceivedbetween50percentand62percentofthecombinedcompany.Incomparableelectric/gascombinations,theelectricpartnerreceivedbetween48percentand83percentofthecombinedcompany.Incomparison,LILCOshareholderswillownapproximately66or68percentoftheHoldingCompanyaftertheCombination.Withrespecttothemarketpremium,inrecentmergers-of-equalstransactions,thelargercompanypaidapremiumtothcclosingmarketpriceonthedaybeforethemergerannouncementofbetween0.3percentand23.3percent.Inelectric/gascombinations,thelargercompanypaidapremiumtotheclosingmarketpriceonthedaybeforethemergerannouncementofbetween11.4percentand48.8percent.LILCO,asthelargercompany,willreceivea29percentpremiumtotheclosingmarketpriceonthedaybeforetheannounccmcntoftheOriginalAgreement.DillonReadbelievesthatthisanalysissupportsDillonRead'sviewthattheOriginalRatiowasfairtotheholdersofLILCOCommonStockfromafinancialpointofview.DiscountedCashFlowAnalysis.DillonReadperformedadiscountedcashAowvaluationbaseduponprojectionsfurnishedbythemanagementsofLILCOandBrooklynUnion.WithrespecttoprojectionsforLILCOandBrooklynUnion,DillonReadassumedthatsuchprojectionswerereasonablyprepareduponbasesreAectingthebestavailableestimatesandjudgmentsofthemanagementsofLILCOandBrooklynUnion,respectively.Utilizingtheseprojections,DillonReaddiscountedtoapresentvalue,undervaryingassumeddiscountrates,(i)thefreeunleveragedcashflowsthroughtheyear2001forLILCOandthroughtheyear2002forBrooklynUnionand(ii)theprojectedterminalvalueattheendoftheyear2001forLILCOandattheendoftheyear2002forBrooklynUnion,utilizingvariousassumedmultiplesofoperatingcashflow(EBITDA)and,operatingincome(EBIT).Thisanalysisindicatedthat,assumingdiscountratesrangingfrom8.0percentto9.0percentforLILCOandterminalvaluemultiplcsrangingfrom5.5xto6.5xforEBITDAand7.5xto9.5xforEBIT(asindicatedbycomparablecompanytradinganalysis),thenetafter-taxpresentvalueofthefuturecashflowsrangedfrom$15.24to$28.53pershareforLILCOonastand-alonebasis.Thisanalysisalsoindicatedthat,assumingdiscountratesrangingfrom8.0percentto9.0percentforBrooklynUnionandterminal.valuemultiplesrangingfrom7.0xto9.0xforEBITDAand11.0xto13.0xforEBIT(asindicatedbycomparablecompanytradinganalysis),thenetafter-taxpresentvalueoffuturecashflowsrangedfrom$23.85to$41.54pershareforBrooklynUniononastand-alonebasis.ThediscountedcashAowanalysisisavaluationmethodusedbyDillonReadtodeterminewhetherLILCOandBrooklynUnionwerereasonablyvaluedinrelationtoeachother.DillonReadbelievesthatthisanalysissupportsDillonRead'sviewthattheOriginalRatiowasfairtotheholdersofLILCOCommonStockfromafinancialpointofview.ProFonnaAnalysis.DillonReadreviewedcertainproformafinancialinformationforthecombinedentityresultingfromtheCombination,basedonLILCO'sandBrooklynUnion'smanagements'rojectionscoveringtheperiodfrom1997to2000.WithrespecttoprojectionsforLILCOandBrooklynUnion,DillonReadassumedthatsuchprojectionswerereasonablyprepareduponbasesreAectingthebestavailableestimatesandjudgmentsofthemanagementsofLILCOandBrooklynUnion,respectively.Thisanalysisindicatedthatearningspershareresulting'fromashareexchangeattheOriginalRatioof0.803wouldbedilutivetoLILCOshareholdersovertheperiodanalyzed.DillonReadalsoperformedanearningspersharesensitivityanalysis.'orthepurposeofthisanalysis,DillonReadassumedthatLILCOelectricratesonastand-alonebasiswerereduced10percent.The10percentreductionisbased,uponpublicpronouncemcntsbyrelevantpartiesofthemagnitudeofratereductionnecessaryforLILCO'selectriccustomers.Itshouldbenotedthatthisanalysiswasforillustrativepurposesonlyandthatthistransactionisnotconditionedonsucharatereduction.Usingthisassumption,theearningspersharesensitivityanalysisindicatedthatearningspersharewouldbeaccretivetoLILCOshareholdersovertheperiodanalyzed.PreliminaryestimatesofsavingsrelatedtothecombinationofLILCOandBrooklynUnionasidentifiedbythemanagementsofthetwocompanieswercdevelopedtoquantifyefficienciesresultingfromoperatingsynergies,plantconstructiondeferralsandgreatereconomiesofscaleinthepurchasingoffuelandotherresourcesusedbyLILCOandBrooklynUnion.Thesepotentialpre-taxsavings(aftercertaincosts)ofapproximately$1billionovertenyearswereassumedtoflowtoratepayersandwillbenefittheHoldingCompany'sshareholdersonlythroughimprovedcompetitiveposition(duetolowerrates).DillonReaddidnot30 independentlyattempttoverifytheestimatedsavingslevels,nordidDillonReadattemptitsownestimationofpotentialcostsavingsresultingfromtheCombination.Initsanalysis,DillonReadassumedthatallofthetotalcostsavingswouldbeflowedthroughtoratepayers.IftheHoldingCompanywereallowed'yoneormoreregulatoryauthoritiestoretainanyofthecostsavings,theresultingprojectedearningswouldbecorrespondinglyhigher.ltLIPATransactionAnalysisOnJune26,1997,theLILCOBoardreceivedDillonRead'swrittenopinionthat,asofthedateoftheopinion,theConsiderationwasfairfromafinancialpointofviewtoLILCO.Thefulltext'ofDillonRead'sopiniondatedJune26,1997,whichdescribestheassumptionsm'ade,mattersconsideredandlimitsonthereviewundertaken,isattachedheretoasAnnexFtothisJointProxyStatement/Prospectusandisincorporatedhereinbyreference.DillonRead'sOpiniondoesnotconstitutearecommendationtoanyholderofL'ILCOCommonStockastohowsuchholdershouldvoteattheLILCOMeeting.HoldersofLILCOCommonStockareurgedtoreadtheopinioninitsentirety.Inarrivingatitsopinion,DillonReadhas,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtoLILCO,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtoitbyLILCO,includinghistoricalandprojectedfinancialinformationfortheT&DBusiness,theNuclearAsse(sand'theRegulatoryAssets(eachasdefinedherein),(iii)conducteddiscussionswithmembersoftheseniormanagementofLILCOwithrespecttothebusinessandprospectsofLILCO,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusiness.DillonReadbelievedtobegenerallycomparabletotheT&DBusiness,(v)comparedpubliclyavailablefinancialandstockmarketdataforcertainutilities'withhighconcentrationsofnucleargenerationtocertainutilitieswithlittleornonucleargeneration,(vi)reviewedthefinancialtermsofcertaintransactionsinvolvingtransmissionanddistributionassets,(vii)consideredtheproformaeffectoftheLIPATransa'ction'ontheHoldingCompany'sfinancialcondition,(viii)reviewedtheLIPAAgreement,(ix)consideredthefinancialtermsoftheBasicAgreements'asdefinedherein),(x)consideredtheeffectoftheLIPATransactiononthependingBrooklynUnion/LILCOAgreement,and(xi)conductedsuchotherfinancialstudies,analysesandinvestigations,andcorisideredsuchotherinformation,asDillonReaddeemednecessaryorappropriate.Inconnectionwithitsreview,DillonReaddidnotindependentlyverifyanyoftheforegoinginformationand,withtheconsentoftheLILCOBoardofDirectors,reliedonitbeingcompleteandaccuratemallmaterial~respects.Inaddition,DillonReaddidnotmakeanyindependentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)ofL1LCOoranyofitssubsidiaries,.norwasDillonReadfurnishedwithanysuchevaluationorappraisal:Withrespecttothefinancialforecastsreferredtoabove,DillonRead,withLILCO'sdirection,assuinedthattheyhadbeenreasonablypreparedonbasesreflectingthebestcurrentlyavailableestimatesandjudgmentsofmanagementastothefuturefinancialperformanceofLILCO,LILCO'stran)missionanddistributionbusiness("T&DBusiness"),certainregula'toryassets("Regulator'yAssets")andLILCO's18%interestintheNineMilePoint2nuclearpowerplant(the"NuclearAssets").DillonReadalso,atLIL'CO'sdirection,reliedonLILCO'sadviceregardingthetaxconsequencesoftheLIPATransaction.DillonReaddidnotattempttoquantifytheregulatoryriskinherentintheRegulatoryAssets,whichwillcompriseamajority'ftheassetsLILCOwillownimmediatelypriortotheLIPATransaction.Further,DillonRead'sopinionwasbasedoneconomic,monetaryandmarketconditio'nsexistingonthedatethereof.TheConsiderationwasdeterminedthrougharm'-lengthnegotiationsbetweenLILCOandLIPA.LILCOdidnotplaceanylimitationsuponDillonReadregardingtheprocedurestobefollowedorfactorstobeconsideredin'renderingitsopinion.DillonReadhasnotbeenrequestedtonor-hasitsolicitedoffersforLILCOoranyofitsbusinessesorassetsfromthirdparties.IItInconnectionwithrenderingitsopinion,DillonReadconsideredavarietyofvaluationmethodswhichatesummarizedbelow.ThefollowingsummarydescribestheanalysesperformedbyDillonRead.inthisregardandiscompleteinallmaterialrespects.*31 T&DBusinessCComparableCompanyTradingAnalysis.DillonReadobservedthatcurrentlynopubliclytradedcompaniesconsistingsolelyofelectrictransmissionanddistributionbusinessesexist.DillonReaddeterminedthatgasdistributioncompaniesandwaterutilitieshavesimilarbusinessandregulatorycharacteristicsandshouldthereforeprovideareasonablycomparablebasisforanalysis.Usingpubliclyavailableinformation,DillonReadcompared,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchasbookvalueofcommonequityofLILCO'sT&DBusinesstocertainothercompanieswhich,inDillonRead'sjudgment,weregenerallycomparableforthepurposeofthisanalysis.ThefactorsDillonReadconsideredinselectingcompaniesforcomparison.includedsize,geographiclocation,financialconditionandscopeofbusinessoperations.ThewaterutilitycompaniesusedinthecomparisonconsistedofAmericanWaterWorksCompany,Inc.,AquariunCompany,ConsumersWaterCompany,PhiladelphiaSuburbanCorporation,SouthernCaliforniaWaterCompanyandUnitedWaterResources,Inc.ThegasdistributioncompaniesusedinthecomparisonconsistedofAGLResourcesInc.,BrooklynUnion,MCNEnergyGroupInc.,NICORInc.,PeoplesEnergyCorporation,andWashingtonGasLightCompany.Therangefortheequitymarketvalueasamultipleofbookvalueforthegasdistributioncompanieswas1.5to2.4timesandforthewaterutilitycompanieswas1;4to2.0times,Themedianwas1.8timesforthegasdistributioncompaniesand1.6timesforthewaterutilitycompanies.DillonReadappliedratiosof1.7to2.0timesand1.4to1.6times,respectively,totheimputedbookvalueoftheT&DBusiness,resultinginanimpliedvaluefortheT&DBusinessof$920millionto$1,082millionin,thecaseofthegasdistributioncompaniesand$758millionto$866millioninthecaseofthewaterutilitycompanies.ComparableTransactionsAnalysis,Usingpubliclyavailableinformation,DillonReadcomparedcertaintermsoftransactionsinvolvingthesaleofelectrictransmissionanddistributionpropertiestotheLIPATransaction.DillonReadalsoconsideredthattherehavebeenasyetveryfewsaletransactionsoftransmissionanddistributionassetsforwhichpublicinformationisavailable.ThetransactionsDillonReadincludedinitsanalysiswerc:,SouthwesternPublicServiceCompany'sacquisitionofpropertyfromTNPEnterprises,Inc.;UnionElectricCompany'ssaleofpropertiestoIESIndustriesInc.andCIPSCOIncorporated;andUtilicorpUnited'sacquisitionofpropertyfromCentelCorporation.Thetransactionshadarangeofprice-to-bookmultipleof1.6to2.0times.DillonReadappliedthesemultiplestotheT&DAssets,resultinginanimpliedvalueof-$866millionto$1,082million.RegulatoryAssets,DiscountedCashFlowAnalysis.Dillon,ReadperformedadiscountedcashflowvaluationoftheRegulatoryAssetsbaseduponprojectionsfurnishedbythemanagementofLILCO.Withrespecttoprojections,DillonRead,assumedthatsuchprojectionswerereasonablyprepareduponbasesreflectingthebestavailableestimatesandjudgmentsofthemanagementofLILCO.Utilizingtheseprojections,DillonReaddiscountedtoapresentvalue,underassumeddiscountratesrangingfrom7.65percentto11percent,thefreeunleveragedcashflows,fortheremaininglivesoftheRegulatoryAssets.Thisanalysisindicatedthatthenetafter-taxpresentvalueoffuturecashflowsrangedfrom$742millionto$1,600million,afterdeductingtheimputeddebtandpreferredstock.NuclearAssetsDillonReadobservedthatcurrentlynopubliclytradedutilitieswithexclusivelynucleargenerationassetsexist,andtodatetherehavenotbeenanysaletransactionsinvolvingonlynuclearassets.Therefore,DillonReadreliedonlimitedpublicinformationtoestablishavaluationrangefortheNuclearAssets.DillonReadcompared'hemedianmarket-to-bookratioofelectricutilitieswithhighconcentrationsofnuclearassetstothosewithlittle~ornonuclearassets>>Electricutilitiesweredividedintothreecategories:thosewheregeneratingcapacitywas~comprisedof40%ormorenucleargeneration("ConcentratedNuclearGroup"),thefiveutilitieswiththelargest32 absoluteamountofnucleargeneration("LargeNuclearGroup"),andthosewithnoorinsignificantamountsofnucleargeneration("Non-nuclearGroup").TheConcentratedNuclearGroupwascomprisedofRochesterGas0ElectricCorporation,UnicornCorporation,PecoEnergyCompanyandDukePowerCompany.TheLargeNuclearGroupwascomprisedofUnicornCorporation;DukePowerCompany,EntergyCorporation,PecoEnergyCompanyandTheSouthernCompany.TheNon-nuclear'Groupconsistedof40utilitiesthroughouttheUnitedStatesofvaryingsizeandcharacteristics,selectedonlyonthebasisofnoorinsignificantnuclearexposure.Themedianmarket-to-bookratioforeachgroupwas:.99timesfortheConcentratedNuclearGroup,.96fortheLargeNuclearGroup,and1.65fortheNon-nuclearGroup.Onaverage,bothgroupsofnuclearutilitiestradedatadiscounttonon-nuclearutilitiesofbetween24%and42%.DillonReadcalculatedanimpliedvalueoftheNuclearAssetsbymultiplyingamarket-to-bookratioof.9to1.0timestheimputedbookvalueoftheNuclearAssets.Theimputedbookvaluewascalculatedbymultiplyingthebookvalueoftheassetsby39%,whichrepresentedthecommonequitycomponentofLILCO'scapitalization.ThiscalculationresultedinanimpliedmarketvalueoftheNuclearAssetsof$241millionto$267million.ProFonnaAnalysisDillonReadcomparedLILCO'sDecember31,1997projectedstand-alonebalancesheettoaproformaLILCObalancesheetforthesamedateadjustedfortheLIPATransaction.DillonReadobservedthattotalassetsofLILCOwoulddeclineasaresultoftheLIPATransactionfromapproximately$11.6billiontoapproximately$4.3billion,largelyasaresultofregulatoryassetsdecliningfromapproximately$6.6billiontoapproximately$141million.DillonReadalsoobservedthatLILCOwouldhavenonetdebt(totaldebtminuscash)asaresultoftheLIPATransaction.DillonReadbelieved,therefore,thatthe,LIPATransactionwouldresultinanimprovementinLILCO'sprojectedfinancialcondition.Usingpubliclyavailableinformation,DillonReadcalculated,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchaslatesttwelvemonthsrevenues,operatingcashflow,operatingincome,cashflowfromoperations,and19P8estimatednetincomeforcertaincompaniesinlinesofbusinesscomparabletothoseLILCOisexpected'tobeinvolvedinaftertheLIPATransaction.WhileLILCOwillbeengagedinthegenerationofelectricityandthemanagementofan'electrictransmissionanddistributionsystem,themajorityofitsearningsareexpectedtobederivedfromthegasdistributionbusiness.DillonReadthereforeusedasitsgroupofcomparablecompaniesgasdistributioncompanies,specificallyAGLResourcesInc.,BrooklynUnion,MCNCorporation,NICORInc.,PeoplesEnergyCorporationandWashingtonGas,LightCompany.Inselectingcompaniesforcomparisons,DillonReadalsoconsideredsize,geographiclocationandfinancialcondition.Themultiplesforthisgroupofcompaniesrangedasfollows:netmarketcapitalizationtorevenue-1.2to1.9;netmarketcapitalizationtooperatingcashflow-6.8to10.7;net.marketcapitalizationtooperatingincome-9.9to19.0;equitymarketvaluetoestimated1998netincome-12.6to14.7',andequitymarketvaluetolatesttwelvemonthscashflowfromoperations-6.5to8.4.ImpliedValues(millions)MuliiplcsAppliedDillonRead,initsjudgment,baseduponthebusinessmixofLILCO.comparedtothecomparablecompanies,appliedmultiplesgenerallyatthelowendoftherangeforcomparablecompaniestotheresultsforLILCOproformafortheLIPATransaction(andbeforeanyincomefromthereinvestmentofthecashproceeds'romtheLIPATransaction)toarriveatimpliedvaluesforLILCO.Themultiplesappliedandtheresultingimpliedvalueswereasfollows:Revenues.OperatingCashFlowOperatingIncome...NetIncomeCashFlowfromOperations.1.3-1.46.8-7.510.0-1LO12.5-13.26.5-7.0$761-$931$681-$899$859-$1,089$975-$1,030$1,014-$1,09233
-DillonReadconsideredthefactthatpursuanttotheBrooklynUnion/LILCOAgreement,thenumberofsharesLILCOshareholderswouldreceiveinrespectofeachoftheirsharesofLILCOCommonStockwouldbeincreasedfrom.803to.880asaresultoftheLIPATransaction.TheLILCOshareholders'wnershipoftheHoldingCompanywouldthereforebeincreasedfrom66%to68%.4UpdatedOpinionTheLILCOBoardhasreceivedanupdatedopinionfromDillonReadthat,asofthedateofthisJointProxyStatement/Prospectus,theOriginalRatioandtheLIPARatiowerefairfromafinancialpointofviewtotheholdersofLILCOCommonStock.ThefulltextofDillonRead'sopiniondatedJune26,1997,whichdescribestheassumptionsmade,mattersconsideredandlimitsonthereviewundertaken,isattachedheretoasAnnexFtothisJointProxyStatement/Prospectusandisincorporatedhereinbyreference.DillonRead'sopiniondoesnotconstitutearecommendationtoanyholderofLILCOCommonStockastohowsuchholdershouldvoteattheLILCOMeeting.HoldersofL'ILCOCommbnStockareurgedtoreadtheopinioninitsentirety.InadditiontoupdatingtheanalysesdescribedaboveoftheOriginalRatio,DillonRead,initsupdatedopinion,consideredthefinancialconsequencestheLIPATransactionwouldhave,ifconsummated,ontheCombination.Specifically,DillonReadconsideredthattheLIPATransactionwouldresultin:(i)purchaseaccountingbeingapplied,ratherthanpoolingaccounting,whichDillonReadassumedwouldbeapplicableintheabsenceoftheLIPATransaction;(ii)theconsiderationreceivedbythcholdersofLILCOCommonStockbecomingtaxable,whereasDillonReadassumedthatintheabsenceoftheLIPATransactiontheCombinationwouldbetax-free;and(iii)anincreaseintheexchangeratiotobereceivedbytheholdersofLILCOCommonStockto.880,from.803intheabsenceofthe'LIPATransaction.Inconnectionwithrenderingitsupdatedopinion,DillonReadconsideredavarietyofvaluationmethods,includingthosedescribedabove.Inaddition,DillonReadperformedtheanalysessummarizedbelow.ProFonnaAnalysisDillonReadcomparedLILCO'sDecember31,1997projectedstand-alonebalancesheettoaproformabalancesheetforthecombinedentityresultingfromtheCombinationforthesamedateadjustedfortheLIPATransaction.DillonReadobservedthattotalassetsoftheHoldingCompanywouldbeapproximately$7.0billioncomparedtoapproximately$11.6billionforLILCO.Themajorreas'onforthedeclineinassetswasthereductioninregulatoryassetsfromapproximately$6.6billiontoapproximately$141million,DillonReadalsoobservedthattheHoldingCompanywouldhavenetdebt:(totaldebtminuscash)ofapproximately$349millioncomparedtoapproximately$5.3billionforLILCO.DillonReadbelieved,therefore,"thattheHoldingCompanywouldhaveanimprovedprojectedfinancialconditionascomparedtoLIL'COstand-alone.jContparableCoinpanyTradittgAnalysisUsingpubliclyavailableinformation,DillonReadcalculated,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchaslatesttwelvemonthsrevenues,operatingcashflow,operating,income,cashflowfromoperations,and1998estimatednetincomeforcertaincompaniesinlinesofbusinesscomparabletothosetheHoldingCompanyisexpectedtobeinvolvedinaftertheCombinationandtheLIPATransaction.WhilesubsidiariesoftheHoldingCompanyw'illbeengagedinthegenerationofelectricityandthemanagementof.anelectrictransmissionanddistributionsystem,themajorityofitsearningsareexpectedtobederivedfromthegasdistributionbusiness.DillonReadthereforeusedasitsgroupofcomparablecompaniesgasdistributioncompanies,specificallyAGLResourcesInc.,BrooklynUnion,MCNCorporation,NICORInc.,PeoplesEnergyCorporationandWashingtonGasLightCompany.Inselectingcompaniesforcomparison,DillonReadalsoconsideredsize,geographiclocationandfinancialcondition.Themultiplesforthisgroupofcompaniesrangedasfollows:netmarket,capitalizationtorevenue-1.2to1.9;netmarketcapitalizationtooperatingcashflow-6.8to10.7;equitymarketvaluetoestimated1998netincome-12.6to14.7;andequitymarketvaluetolatesttwelvemonthscashflowfromoperations-6.5to8.4.34
:DillonReadappliedmultipleswithintherangeforcomparablecompaniestothe1998projectedresultsfortheHoldingCompanyproformafortheLIPATransaction(andbeforeanyincomefromthereinvestmentofthecashproceedsfromthe,LIPATransaction)toarriveatimpliedtradingvaluesfortheHoldingCompany(beforeassigninganyvaluetocash).Themultiplesappliedandresultingimpliedvalueswercasfollows:ImpHedImpliedValuesI'orValuespcrMultiplesthcIIoldingsharcofAppliedCompanyLILCO*IIRevenues.1.4-1,5$12.72-$14.61$11.19-$12.86OperatingCashFlow,;..........7.0-8.0$12.71-$16.50$11.18-$14.52OperatingIncome........,...10.0-12.0$14.59-$20.26$12.84-$17.83NetIncome......13.5-15.0$16.55-$18.39$14.57-$16.18,CashFlowfromOperations...............6.5-7.0$14.83-$15.97$13.05-$14.05*Basedonthe.880excltangeratioandbeforeassigninganyvaluetothecashproceedsfromtheLIPATransaction.DillonReadthencalculatedtheafter-taxcashproceedsthattheHoldingCompanywouldreceivepursuanttotheLIPATransaction,dividedsuchamountbytheexpectedsharesoutstandingoftheHoldingCompany,andmultipliedtheresultbythe.880exchangeratiotoarriveatacashamountperLILCOshare.DillonReadaddedsuchpersliareamounttotheimpliedvaluespt:rLILCOshareresultingfromtheComparableCompanyTradingAnalysistoarriveat'totalvalueperLILCO'shareof$23.32to$26.40.Finally,DillonReadcomparedsuchimpliedvaluetoLILCO'sstockpriceonDecember27,1996(thelasttradingdatepriortotheannouncementoftheCombination)of$19.375andnotedthattheimpliedvaluewashigherbybetween20and36percent.Thepreparationofafairnessopinioninvolvesvariousdeterminationsastothemostappropriateandrelevantmethodsoffinancialanalysisandtheapplicationofthesemethodstoparticularcircumstances,and,therefore,theopinionandanalysisarenotreadilysusceptibletosummarydescription.Accordi'ngly,notwithstandingtheseparatefactorsandanalysessummarizedabove,DillonReadbelievesthatitsanalysesmustbeconsideredasawholeandthatselectingportionsofitsanalysesandotherfactorsitconsidered,withoutconsideringallfactorsandanalyses,couldcreateamisleadingviewoftheevaluationprocessunderlyingitsopinions.DillonReaddidnotassignanyparticularweighttoanyanalysisorfactoritconsideredbut,rather,madequalitativejudgmentsbasedonitsexperienceinrenderingsuchopinionsandoneconomic,monetaryandmarketconditionsthenpresentastothesignificanceandrelevanceofeachanalysisandfactor.Initsanalyses,DillonReadassumedrelativelystableindustryperformance,regulatoryenvironmentsandgeneralbusinessandeconomicconditions,allofwhicharebey'ondLILCO'scontrol.AnyestimatescontainedinDillonRead'sanalysesdonotnecessarilyindicateactualvalue,whichmaybesignifican'tlymoreorlessfavorablethanstatedtherein.Estimatesofthefinancialvalueofcompaniesdonotpurporttobeappraisalsornecessarilyreflectthepricesatwhichcompaniesactually'aybesold.Inrenderingitsopinions,DillonReadexpressednoviewsastotherangeofvaluesatwhich'heLILCOCommoriStockmaytradefollowingtheconsummationofthetransactionsdiscussedherein,nordoesDillonReadmakeanyrecommendationstoaholderofLILCOCommonStockwithrespecttohowsuchholdershouldvoteonthetransactionsdiscussedhereinortotheadvisabilityofdisposingoforretainingtheHoldingCompanyCommonStockfollowingthetransactionsdiscussedherein.DillonReadisaninternationallyrecognizedinvestmentbankingfirm.which,aspartofitsinvestmentbankingbusiness;regularlyisengagedinevaluatingbusinessesandtheirsecuritiesinconnectionwithmergersandacquisitions,negotiatedunderwritings,competitivebids,secondarydistributionsoflistedandunlistedsecurities,privateplacementsandvaluationsforestate,corporateandotherpurposes.TheLILCOBoardselectedDillonReadonthebasisofthefirm'sexpertiseandreputation.PursuanttotheengagementletterbetweenLILCOandDillonRead,LILCOhaspaidDillonReadthefollowingamounts:$2.5millionupontheexecutionoftheengagementletter,whichincludescompensationfor-financialservicesrenderedtoLILCOfromtimetotimesinceApril1992relatedtoproposalsforatransaction35 suchastheLIPATransaction,$2.5millionupontherenderingofDillonRead'sfairnessopiniontotheLILCOBoardaddressingtheCombinationand$2.5millionupontherenderingofDillonRead'sfairnessopiniontotheLILCOBoardaddressingtheLIPATransaction.LILCOhasalsoagreedtopayDillonReadafeeuponconsummationofeitherorbothtransactionsequalto.4percentoftheaggregateamountofconsiderationreceivedbyLILCOoritscommonshareholders,less$6.25millionofthepaymentsmentionedabovewhichwillhavepreviouslybeenpaid.DillonReadhas,inthepast,performed'variousinvestmentbankingservicesforLILCOforwhichDillonReadhasbeencompensated.Intheordinarycourseofbusiness,DillonReadtradesthedebtandequitysecuritiesofLILCOandBrooklynUnionforitsownaccountandtheaccountsofitscustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.FortheopinionofBrooklynUnion'sfinancialadvisor,see"SelectedInformationConcerningBrooklynUnion-OpinionofBrooklynUnion'sFinancialAdvisor".PotentialConflictsofInterestsofCertainPersonsintheCombinationandtheLIPATransactionInconsideringtherecommendationsoftheBrooklynUnionBoardofDirectorsandtheLILCOBoardofDirectorswithrespecttotheBrooklynUnion/LILCOAgreementandtherecommendationoftheLILCOBoardofDirectorswithrespecttotheLIPAAgreement,BrooklynUnionandLILCOshareholdersshouldbeawarethatcertainofficersanddirectorsofB'rooklynUnionandLILCO(ortheiraffiliates)haveinterestsintheMe'rgerthataredifferentfromandinadditiontotheinterestsofBrooklynUnionandLILCOshareholdersgenerally.See"SelectedInformationConcerningLILCO-PotentialConflictsofInterestsofCertainPersonsiritheCombinationandtheLIPATransaction,"and"-SelectedInformationConcerningBrooklynUnion-PotentialConflictsofInterestsofCertainPersonsintheCombinationandtheLIPATransaction."TheHoldingCompanyisrequiredbytheBrooklynUnion/LILCOAgreementtoprovideindemnificationandliabilityinsurancearrangements=fordirectorsandofficersofBrooklynUnionandLILCO.See"TheAgreementandPlanofExchangeandMerger-Indemnification."CertainArrangementsRegardingtheDirectorsandManagementoftheHoldingCompanyFollowingtheCombinationandtheLIPATransactionBoardofDirectors.TheBrooklynUnion/LILCOAgreementprovidesthatuponconsummationoftheCombination,thenumberofdirectorscomprisingthefullBoar'dofDirectorsoftheHoldingCompanywillbe15persons,sixofwhomwillhavebeendesignatedbyBrooklynUnion,sixofwhomwillhavebeendesignatedbyLILCOandthreeofwhomwillhavebeendesignatedbyacommitteeconsistingoftwocurrentdirectorsofBrooklynUnionandtwocurrentdirectorsofLILCO.IntheeventthattheMergerisnotconsummated,theBoardofDirectorsoftheHoldingCompanywillcorisistoftheDirectorsofLILCOservingimmediatelybeforetheclosingoftheLIPATransaction.Officers.UndertheBrooklynUnion/LILCOAgreement,Dr.Catacosinos,whocurrentlyservesasCliairmanoftheBoardofDirectors,CliairmanoftheExecutiveCommitteeandChiefExecutiveOfficerofLILCO,willserveasChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheHoldingCompanycommencinguponconsummationoftheCombination.Inaddition,Mr.Catell,whocurrentlyservesasChairmanandChiefExecutiveOfficerofBrooklynUnionwillserveasPresidentandChiefOperatingOfficeroftheHoldingCompanycommencinguponconsum'mationoftheCombination.TheBrooklynUnion/LILCOAgreementalsoprovidesthatatthefirstanniversaryoftheconsummationoftheCombination,Dr.CatacosinoswillceasetobetheChiefExecutiveOfficerbutwillcontinuetobeChairmanoftheBoardandChairmanoftheExecutiveCommitteeoftheHoldingCompanyandwillbecomeaconsultant totheHoldingCompany,andMr.CatellwillsucceedDr.CatacosinosasChiefExecutiveOfficeroftheHoldingCompany.ThearrangementstocausesuchelectionstotakeplaceatthefirstanniversaryoftheconsummationoftheCombinationmaybealteredonlybyavoteoftwo-thirdsoftheentireBoardofDirectorsoftheHoldingCompany.IntheeventthattheMergerisnotconsummated,theprovisiondescribedintheprecedingparagraphwillnottakeeffectandDr.CatacosinoswillcontinuetoserveasChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheHoldingCompany.FederalIncomeTaxConsiderationsTaxRulingsRequestedforLIPATransactionThepartiesintendtoseekrulingsfromtheIRSsubstantiallytothefollowingeffect(1)thatexceptforanygainonLILCO'stransferoftheTransferredAssets,LILCOwillnotrecognizegainpursuanttoSection337(d)oftheInternalRevenueCodeof1986,asamended(the"Code"),'ranyotherCodeprovision(a)uponLIPA'spurchaseofLILCOCommonStockandtheamendmentofLILCO'sarticlesofincorporation(toqualifyasaSection115entity),or(b)byreasonofLILCO'ssubsequentexclusionofincomeunderSection115oftheCode;(2)thattheLIPAAgreementconstitutesa"bindingagreement"forpurposesofcertainproposedregulationsunderSection337(d)oftheCode,sothattheissuanceoftheproposedregulationsasfinalregulationsbeforeorafterconsummationoftheLIPATransactionwouldnotaffectLILCO'snonrecognitionofgainasconfirmedbytheprecedingSection337(d)ruling;(3)thattheincomeofLILCOfollowingtheLIPATransaction,includinganyincomereceivedfromrate-payersthatisattributabletotheRegulatoryAssets,willbederivedfromitsactivityasapublicutilityandwillaccruetoapoliticalsubdivisionofNewYorkStatewithinthemeaningofSection115(1)andthereforewillbeexcludedfromgrossincomeunderSection115(l)whilethestockofLILCOiswhollyownedbyLIPA;and(4)thattheinterestpaidonindebtednessissuedbyLIPAtofinancetheLIPATransactionandtorefinancecertainLILCOindebtednesswillqualifyforexclusionfromgrossincomeunderSection103oftheCode.ThereceiptoffavorableIRSrulingsisaconditiontotheobligationsofthepartiestoconsummatetheLIPATransactionundertheLIPAAgreement.NoassurancecanbegiventhattheIRSwillissueanyoralloftherequiredrulings.MaterialFederalIncomeTaxConsequencesThefollowingsetsforththeopinionofWachtell,Lipton,Rosen&KatzastothematerialfederalincometaxconsequencesoftheMergertoBrooklynUnionanditsshareholders.ThefollowingalsosetsforththeopinionofHunton&WilliamsastothematerialfederalincometaxconsequencesoftheShareExchangeandtheLIPATransactiontoLILCOanditsshareholders.,ThefollowingdiscussionisbasedontheCode,theregulationsthereunder,administrativeinterpretationsandcourtdecisions.Futurelegislation,regulations,administrativeinterpretationsorcourtdecisionscouldchangethetaxconse'quencesdescribedbelow.Thisdiscussiondoesnotaddressallaspectsoffederaliitcome'taxationthatmaybeimportanttoanyspecificshareholderinlightofsuchshareholder'sp'articularcircumstances.Nordoesitaddressaspectsthatmaybeimportanttoshareholderssubject'tospecialrules,suchasshareholderswhotarenotcitizensor'residentsoftheUnitedStates,financialinstitutions,tax-exemptorganizations,insurancecompanies,dealersinsecuritiesorshareholderswhoacquiredtheirBrooklynUnionCommonStock,LILCOCommonStockorLILCOPreferredStockpursuanttotheexerciseofoptionsorotherwiseascompensation.'37 ThisdiscussionassumesthatLILCOandBrooklynUnionshareholdersholdtheirrespectivesharesofstockascapitalassetswithinthemeaningofSection1221oftheCode.Accordingly,gainorlossrecognizedbyshareholdersasdescribedbelowgenerallywillbecapitalgainorloss.Itwillbelong-termgainorlossforstockheldmorethanoneyearattheeffectivetimeofthetransactionresultinginthegainorloss.IftheKeySpanShareExchangeisconsummatedpriorto,theMerger,thenallreferencescontainedinthisdiscussionofMaterialFederalIncomeTaxConsequences(i)toBrooklynUnionCommonStockandtheholdersthereofshallrefertoKeySpanCommonStockandtheholdersthereofand(ii)toBrooklynUnionshallrefertoKeySpan.TaxConsequences-OverviewI>>NThematerialfederalincometaxconsequencesoftheLIPATransactionandtheCombinationdependinpartonwhethereachtransactionoccursandtheorderinwhichthetransactionsoccur.'Specifically,thematerialfederalincometaxconsequencesdependonwhether(i)theLIPATransactionandtheCombinationoccurconcurrently(ortheLIPATransactionprecedestheCombination),(ii)onlytheLIPATransactionoccurs,(iii)theCombinationoccurswhentheLIPAAgreementhasnotbeenterminatedorconsummated,or(iv)theCombinationoccursaftertheLIPAAgreementisterminated.Thematerialfederalincometaxconsequencesofeachofthesepossiblealternativesisdiscussedbelow.Thefollowingtableisprovidedasaguidetotftediscussionofthematerialfederalincometaxconsequencesoftheproposedtransactionsandisqualifedinitsentiretybythatdiscussion.SituationITransactionDescriptionLIPATransactionoccurswithorpriortoCombinationEffectonLILCOCommontt:PreferredShareholdersvrhoDoNotDissentTaxable-Possible51033DeferralEffectonIIUShareholdersivhoDoNotDissentNottaxable(otherthantaxonpossibledividendincomeequaltoNewYorkCityrealpropertytransfertaxthatmayotherwisebepayablebyashareholder)EffectonLILCOTaxablegainontransferofTransferredAssetsIILIPATransactiononlySameasI.III-ACombinationafterCommon:SameaswhichLIPAI.Preferred:NotI'ransactionterminatedtaxableNotapplicableSameasI.SameasI.Nottaxable:Noassettransfe'rIII-BIII-CCombinationfollowedbyLIPATransaction:,TreatedasiridependentCombinationfollowedbyLIPATransaction:NottreatedasindependentSameasI.SameasI.SameasI.SameasI.SameasI.SameasI.IVCombinationoccursNottaxableafterLIPATransactionterminatedSameasI.Nottaxable:Noassettransfer,I.IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombinationTaxImplicationstoLILCO.LILCO'stransferoftheTransferredAssetstotheHoldingCompanyand/ortheHoldingCompanysubsidiariesthatreceivetheTransferredAssets(the"TransfereeSubsidiaries")in38 exchangeforHoldingCompanyCommonStockandHoldingCompanyPreferredStockintheLIPATransactionshouldbe'ataxabletransactionforLILCO.VTaxIniplicationstotheHoldittgContpany.TheHoldingCompanywillnotrecognizegainorlossuponitsissuanceofHoldingCompanyCommonStockandHoldingCompanyPreferredStocktoLILCOinexchangefortheTransferredAssets.TheHoldingCompany'saggregatebasisintheTransferredAssetsshouldequalthefairmarketvalueoftheTransferred.Assetkatthetimeoftheexchange.Inaddition,theHoldingCompanywillnotrecognizegainorlossuponitsissuanceofHoldingCompanyCommonStocktoholdersofLILCOCommon.Stock(throughtheiragent)inexchangeforthecashtheyreceived(throughtheiragent)fromLIPAintheLIPAMerger.See"TheLIPATransaction-AgreementandPlanofMerger"foradescriptionoftheLIPATransaction.,TaxImplicationstoHoldersofLILCOCommonStock.Althoughnotfreefromdoubt,andsubjecttothepossibleapplicationofSection1033oftheCodeasdiscussedbelow,theLIPATransactionshouldbetreatedasataxabledispositionofLILCOCommonStockbytheholdeNinexchangeforcashreceived(throughtheiragent)fromLIPAandHoldingCompanyCommonStockreceivedfromLILCO.TheholdersofLILCOCommonStockshouldrealizegainorlossequaltothedifferencebetween(i)thesumofthecashandthefairmarketvalueofsuchHoldingCompanyCommonStockreceivedand(ii)theholders'espectivetaxbasisintheirLILCOCommonStock.SubjecttothepossibleapplicationofSection1033bftheCode,ashareholder'sbasisin(i)HoldingCompanyCommonStockreceivedfromHoldingCompanywillequalthecashpaidthereforand(ii)HoldingCompanyCommonStockreceivedfromLILCOwillequalsuchstock'sfairmarketvalueattheeffectivetimeoftheLIPATransaction.HoldersofLILCOCommonStockmaybeabletodcfei'heirrecognitionofsuchgain(butnotloss)pursuanttoSection1033oftheCode.Section1033generallyprovidesthatifataxpayertransferspropertyunderathreatofcondemnationandreceivesinexchangepropertythatis"similarorrelatedinserviceoruse"tothetransferredproperty("replacementproperty"),thenthetaxpayerwillnotrecognizegainonthetransfer.Section1033furtherprovidesthatifthetaxpayerreceivesmoneyorotherproperty,thenthetaxpayermayelecttodeferrecognizinggainbypurchasingreplacementpropertywithintwoyearsafterthecloseofthetaxyearinwhichthetaxpayer,firstrealizesgainfromthetransfer.LILCO'smanagementbelievesthattheLIPATransactionisoccurringunderthreatofcondemnation.ThenonrecognitionprovisionsofSection1033oftheCodemayapplytothcshareholders'ispositionofLILCOCommonStock.IfSection1033isapplicable,HoldingCompanyCommonStockmightqualifyas,replacementpropertyforLILCOCommonStock.Inthatevent,holdersofLILCOCommonStockmaynotberequiredtorecognizegainwithrespecttotheirreceipt(ortheiragent'sreceipt)ofHoldingCompanyCommonStockfromLILCO.Inaddition,holdersofLILCOCommonStockthatelecttodosomaynotberequiredt9recognizegainwithrespecttotheiragent'sreceiptofcashfromLIPA,becauseofthereinvestmentofsuchcashinHoldingCompanyCommonStock.IfSection1033applies,thenashareholderwillberequiredtomakeanelectiontoavoidrecognitionofgainwithrespecttothereceiptofcash,andmayberequiredtomakeanelectionwithrespecttothereceiptofHoldingCompanyCommonStock.IfashareholderavoidsrecognizinggainintheLIPATransactionpursuanttoSection1033,theshareholder'staxbasisinthereplacementproperty(HoldingCompanyCommonStock)generallywillequaltheshareholder'scostbasisforsuchreplacementpropertydecreasedbytheamountofgainnotrecognizedpursuanttoSection1033.Consequently,theshareholder'saggregatetaxbasisinitsHoldingCompanyCommonStockgenerallyshouldbethesameastheshareholder'saggregatetaxbasisinLILCOCommonStock,lesstheamountofcashreceivedinlieuofafractionalshare.ThereisnoprcccdentinvolvingtheapplicabilityofSection1033toatransactionsimilartotheLIPATransaction,Accordingly,counselexpressesnoopinionregardingthepotentialapplicationofSection1033toholdersofLILCOCommonStock.39 tTHEPOSSIBLEAPPLICATIONOF.SECTION:1033TOTHELIPATRANSACTIONISUNCERTAIN.EACHHOLDEROFLILCOCOMMONSTOCKISENCOURAGEDTOCONSULTWITHTHESHAREHOLDE<R'SOWNTAXADVISORTODETERMINE,AMONGOTHERISSUES,(i)WHETHERSECTION1033APPLIES-TO'SUCHSHAREHOLDER,(ii)WHATPROPERTYQUALIFIE~SASREPLACEMENTPROPERTY,(iii)WHETHER,ANDINWHATMANNER,THESHAREHOLDERMUSTMAKEANELECTIONTOAVOIDRECOGNIZINGGAIN,AND(iv)THEAMOUNTOF<ANYREQUIREDADJUSTMENTTOTHE,SHAREHOLDER~SBASISINREPLACEMENTPROPERTY.MHoldersof,LILCOCommonStock,whoexercisedissenters'ightswithrespecttotheLIPATransactionandreceivecashfortheirLILCOCommonStockwillrecognizegainorlossforfederalincometaxpurposes.AdissentingshareholdermightbeabletodeferrecognizingsuchgainpursuanttothenonrecognitionprovisionsofSection]033oftheCodeasdiscussedaboveif,amongotherthingstheshareholderacquiresreplacementproperty.TaxImplicationstoHoldersofLILCOPreferredStock.HoldersofLILCOSeriesAAPreferredStockwhoexchangesuchsharesforHoldingCompanypreferredstockinconnectionwiththeLIPATransactionwillrecognizegainorlossforfederalincometaxpurposes.TheamountofgainorlosswillequalthedifferencebetweenthefairmarketvalueofHoldingt,ompanystockreceivedandtheshareholders'espectivetaxbasisintheirLILCOSeriesAAPreferredStock.HoldersofLILCOPreferredStockthatiscalledforredemptionorthatisacquiredorotherwisecanceledinexchangeforcashbyLILCOorLIPApursuanttothetermsoftheLIPAAgreementandholdersofLILCOPreferredStockwhodissentandreceivecashalsowillrecognizegainorloss.AholderofLILCOSeriesAAPreferredStockorotherLILCOPreferredStockmightbeeligibletodeferrecognitionofsuchgainpursuanttotheprovisionsofSection1033oftheCodediscussedaboveunder"-TaxImplicationstoHoldersofLILCOCommonStock"if,amongotherthings,theshareholderacquiresreplacementproperty.TaxImplicahonstoHoldersofBrooklynUnionConnnonStock.ExceptfordissentingshareholdersandthepossibleapplicationofTransferTaxes(ashereafterdiscussed),theexchangeofBrooklynUnionCommonStockforHoldingCompanyCommonStockintheMergerwillbetax-free.Accordingly,subjecttothepriorsentence,nogamorlosswillberecognizedforfederalincometaxpurposesbyholdersofBrooklynUnionCommonStockwhoexcha'ngesuchStockforHoldingCompanyCommonStockintheMerger.ThebasisandholdingperiodfortheHoldingCompanyCommonStockreceivedbyaBrooklynUnionshareholderintheMergerwillbethesameasthebasisandholdingperiodintheBrooklynUnionCommonStockexchanged'herefor.SomeholdersofBrooklynUnionCommonStockmayhavedifferingbasesorholdingperiodsfortheirsharesofBrooklynUnionCommonStock.SuchholdersshouldconsulttheirtaxadvisorspriortotheexchangewithregardtoidentifyingthebasesandholdingperiodsoftheparticularsharesofHoldingCompanyCommonStockreceivedintheexchange.HoldersofBrooklynUnionCommonStockwhoexercisedissenters'ightsintheMergerandreceivecashfortheirBrooklynUnionCommonStockwillrecognizeeithergainorlossforfederalincometaxpurposes.Theamountofsuchgainorlosswillbeequaltothedifferencebetweenthe"amountofcashreceivedandtheirtaxbasisintheirsharesofBrooklynUnionCommonStock.NewYorkCityimposescertaintaxesonthetransferofaninterestinrealproperty(includingleases)locatedinNewYorkCity("TransferTaxes").TransferTaxesarealsoimposedinconnectionwithcertainchangesofownership"ofanentityowningarealpropertyinterestinNewYorkCity.TheexchangeofBrooklynUnionCommonStockforHoldingCompanyCommonStockbyBrooklynUnionshareholderspursuanttotheBrooklynUnion/LILCOAgreementwillresultintheimpositionofTransferTaxes.BrooklynUnion(andnotKeySpan)willpayanyTransferTaxesincurredasaresultofachangeinownershipofBrooklynUnion.Forfederalincometaxpurposes,thepaymentofTransferTaxesbyBrooklynUnionmaybedeemedtobeataxabledividendpaidbyBrooklynUnionfocertainBrooklynUnionshareholders.ThiswouldbethecaseifBrooklynUnionisconsideredtohavesatisfiedwhatisotherwisetheobligationofashareholdertopayTransferTaxesasopposed40 toitsownobligationtopaysuchtaxes.AnyincometaxesresultingfromsuchdeemeddividendwillbetheresponsibilityofthoseBrooklynUnionshareholders.Althoughnotfreefromdoubt,aBrooklynUnionshareholdershouldbeentitledtoincreaseitstaxbasisinHoldingCompanyCommonStockreceivedintheMergerbytheamountofanysuchdeemeddistribution.II.IfOnlytheLIPATransactionOccursIftheLIPATransactionoccursbuttheCombinationdoesnotoccur,thematerialfederalincometaxconsequencestoLILCO,HoldingCompanyandtheholdersofLILCOCommonStockandLILCOPreferredStockshouldbethesameastheconsequenceswheretheLIPATransactionoccursconcurrentlywith,orprecedes,theCombination.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination."III.IftheCombinationOccurswhentheLIPAAgreementhasnotbeenTerminatedorConsummatedIftheCombinationoccurswhentheLIPAAgreementhasnotbeenterminatedorconsummated,therearethreepossiblealternatives:(A)theCombinationoccursandtheLIPAAgreementthereafteristerminated(orexpires);(B)theLIPATransactionoccursaftertheCombination,andtheLIPATransactionistreatedasanindependenttransaction;and(C)theLIPATransactionoccursaftertheCombination,andtheLIPATransactionisnottreatedasanindependenttransaction.Thematerialfederalincometaxconsequencesofeachofthesealternativesisdiscussedbelow.Ingeneral,iftheCombinationoccurswhentheLIPAAgreementhasnotbeenterminatedorconsummated,theShareExchangeshouldbeataxabledisposition(subjecttothepossibleapplicationofSection1033ofthelCode)bytheholdersofLILCOCommonStock.IftheLIPATransactionoccursaftertheCombinationandtheLIPATransactionistreatedasanindependenttransaction,theLIPATransactionshouldbetreatedgenerallyasasaleoftheLILCOCommonStockbytheHoldingCompanytoLIPA.Ifthe'LIPATransactionoccursaftertheCombinationandtheLIPATransactionisnottreatedasanindependenttransaction,theShareExchangeandtheLIPATransactiontogethermaybetreatedgenerallyasasaleoftheLILCOCommonStockbytheholdersofthatstock(subjecttothepossibleapplicationofSection1033oftheCode).Inanyevent,theMergergenerallyshouldbeanontaxableexchangeoftheBrooklynUnionCommonStockforHoldingCompanyCommonStock.Thematerialfederalincometaxconsequencesofthesethreealternativesarediscussedmorefullybelow.WhethertheLIPATransactionwillbe,treatedasanindependenttransactioniftheCombinationprecedestheLIPATransactionisuncertain.ThecloserintimethattheCombinationandtheLIPATransactionoccur,themorelikelythattheLIPATransactionwillnot'etreatedasanindependenttransaction.Becausethetimebetweenthetwotransactionsandthenatureofanyintervening"eventsareunknown,counselexpressesnoopinionwhethertheLIPATransactionwillbetreatedasanindependenttransaction.A.IftheCombinationOccursandtheLIPA'AgreementThereafterisTerminated.TheexchangeofLILCOCommonStockforHoldingCompanyCommonStockhas,beenstructuredtobeataxabledispositionofLILCOCommonStockbytheholdersthereoftoHoldingCompanyinexchangeforHoldingCompanyCommonStock;TheholdersofLILCOCommonStockshouldrecognizegainorlossequaltothedifferencebetwccn(i)thesumofthefairmarketvalueofHoldingCompanyCommonStockandthecashreccivcdbytheshareholdersinlieuoffractionalshareinterestsinHoldingCompanyCommonStockand(ii)theholders'espectivetaxbasisintheirLILCOCommonStock.Ashareholder,mightbeabletodeferrecognitionofsuchgainpursuanttotheprovisionsofSection1033oftheCodediscussedabove.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersoftLILCOCommonStock."HoldersofLILCOCommonStockwhodissentfromparticipatingintheShareExchangeandreceivecashfortheirLILCOCommonStockwillrecognizegainorlossforfederalincometaxpurposes,Adissenting41 tshareholdermightbeabletodeferrecognitionofsuchgainpursuanttotheprovisionsofSection1033oftheCodediscussedaboveif,amongotherthings,theshareholderacquiresreplacementproperty.IftheCombinationoccursandtheLIPAAgreementthereafteristerminated(orexpires),thefederalincometaxconsequencestotheholdersofBrooklynUnionCommonStockshouldbethesameasthosedescribedforaMergerthatoccursconcurrentlywith,orafter,theLIPATransaction.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersofBrooklynUnionCommonStock.".B.IflIreLIPATransactionOccursAftertheCombinationandtheLIPATransactionisTreatedasanIndependentTransaction.IftheCombinationistreatedasindependentfromtheLIPATransactioninaccordancewithitsform,thefederalincometaxconsequencesoftheCombination,totheLILCOcommonshareholdersandtheBrooklynUnionshareholdersgenerallyshouldbethesameasthosedescribedintheprecedingsection.See"-MaterialFederalIncomeTaxConsequences-IftheCombinationOccursBeforetheLIPAAgreementisTerminated-IftheCombinationOccursandtheLIPAAgreementThereafterisTerminated."Underthisalternative,however,theholdersofLILCOCommonStockwillreceiveadditionalsharesofHoldingCompanyCommonStockuponconsummationoftheLIPATransaction.InthateventandiftheCombination'andtheLIPATransac'tionoccurindifferenttaxyearsforashareholder,thecontingentpayment,installmentsaleprovisionsoftheCodemayapplytothereceiptofsuchadditionalsharesofHoldingCompanyCommonStock.Further,iftheLIPATransactionclosesmorethansixmonthsaftertheCombination,thenaportionoftheadditionalsharesofHoldingCompanyCommonStockre'ceivedmaybetreatedasinterestincome.EachholderofLILCOCommonStockshouldconsultsuchshareholder'sowntaxadvisorastotheseissues.IftheLIPATransaction,istreatedasindependentfromtheCombination.LILCO'stransferoftheTransferredAssetstotheTransfereeSubsidiariesinthe"LIPATransaction.willcauseLILCOto-recognizegain.HoldersofLILCOSeriesAAPreferredStockwhoexchangesuchsharesforHoldingCompanyPreferredStockinconnectionwiththeLIPATransactionshouldrecognizegainorloss.TheamountofgainorlosswillequalthedifferencebetweenthefairmarketvalueofHoldingCompanystockreceivedandtheshareholders'espectivetaxbasisintheirLILCOSeriesAAPreferredStock.HoldersofLILCOPreferredStockthatiscalledforredemptionorthatisacquiredorotherwisecanceledinexchangeforcashbyLILCOorLIPApursuanttothetermsoftheLIPAAgreementandholdersofLILCOPreferredStockwhodissentandreceivecashalsowillrecognizegainorloss.AholderofLILCOSeriesAAPreferredStockor.otherLILCOPreferredStockmightbeeligibletodeferrecognitionofgainpursuanttotheprovisionsofSection1033oftheCodediscussedabove.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersofLILCOCommonStock."C.IftheLIPA-TransactionOccursAftertheCombination"andtheLIPATransactionisNotTreatedasanIndependentTransaction.IftheLIPATransactionoccursaftertheCombinationandtheLIPATransactionisnottreatedasindependent,theholdersofLILCOCommonStockmaybetreatedassellingsuchstockdirectlytoLIPA.Inthisevent,thematerialfederalincometaxconsequencestoholdersofLILCOCo'mmonStockandPreferredStockshouldbe,andtotheholdersofBrooklynUnionCommonStockwillbe,thesameasthosedescribedforsuchholdersiftheLIPATransactionoccursconcurrentlywith,orprecedes,theCombination.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination."IV.IftheCombinationOccursAftertheLIPAAgreemcntisTerminatedIftheCombinationoccursaftertheLIPAAgreementisterminatedorexpires,Section351(a)oftheCodeshouldapplytotheShareExchange.UnderSection351(a),nogainorlosswillberecognizedforfederalincometaxpurposesbyholdersofLILCOCommonStockwhoexchangetheirLILCOCommonStockforHoldingCompanyCommon;Stock,exceptwithrespecttocashreceivedinlieuoffractionalshares.TheaggregatetaxbasisofHoldingCompanyCommonStock'receivedby.aLILCOshareholderasaresultoftheCombinationwill42 tbethesameastheshareholder'saggregatebasisintheLILCOCommonStocksurrenderedintheexchange(reducedbyanysuchtaxbasisallocabletothefractionalshareforwhichcashisreceived).'TheholdingperiodofHoldingCompanyCommonStockreceivedbyaLILCOshareholderwillincludetheholdingperiodfortheLILCOCommonStockexchangedforsuchHoldingCompanyCommonStock.CashreceivedbyaholderofLILCOCommonStockinlieuofafractionalshareinterestinHoldingCompanyCommonStockwillresultintherecognitionofgainorlossequaltothedifferencebetweentheamountofcashreceivedandthetaxbasisallocabletosuchfractionalshareinterest.IfaholderofLILCOCommonStockhasdifferingbasesorholdingperiodsinitssharesofLILCOCommonStock,itshouldconsultitstaxadvisorpriortotheShareExchangewithregardtoidentifyingthebasesorholdingperiodsoftheparticularsharesofHoldingCompanyCommonStockreceivedintheShareExchange.ThefederalincometaxconsequencestoholdersofLILCOCommonStock,whoexercisedissenters'ightswithrespecttotheCombinationandreceivecashfortheirLILCOCommonStockwillbethesameasdescribedaboveforLILCOshareholderswhoexercisedissenters'ights,exceptthatdissentingshareholdersshouldnotbeeligibletodeferrecognitionofgainpursuanttotheprovisionsofSection1033oftheCode.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,'orPrecedes,theCombination-TaxImplicationstoHoldersofLILCOCommonStock."ThefederalincometaxconsequencestotheholdersofBrooklynUnionCommonStockwillbethesameasdescribedaboveforaMergerthatisprecededbytheLIPATransaction.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersofBrooklyn'UnionCommonStock."TheprecedingdoesnotpurporttoaddressallpotentialfederalincometaxconsequencesoftheLIPATransactionandtheCombination.Inaddition,theforegoingdiscussiondocsnotaddressfederalincomeetaxconsequenceswhichmayvarywith,orarecontingenton,ashareholder'sindividual,circumstances,Moreover,exceptforthediscussionoftheTransferTaxesabove,thisdiscussiondocsnotaddressanynon-incometaxoranyforeign,stateorlocaltaxconsequencesoftheCombinationortheLIPATransaction,ThisdiscussiondoesnotaddressthetaxconsequencesofanytransactionotherthantheLIPATransactionandtheCombination.Accordingly,eachshareholderisurgedtoconsultwithsuchshareholder'staxadvisortodeterminetheparticularfederal,state,localorforeignincomeorothertaxconsequencestosuchshareholderoftheLIPATransactionandtheCombination.AccountingTreatment,General.UnlesstheLIPATransactionhasbeenconsummated,orwillbe,consummatedcontemporaneouslywith,theCombination,itisaconditiontotheconsummationoftheCombinationthatBrooklynUnionreceivesaletterfromArthurAndersenLLPandLILCOreceivesaletterfromErnst&YoungLLP,eachdatedtheEffectiveTimeandeachofwhichindicatesthattheyconcurwithmanagement'sconclusionthatnoconditionsexistthatwouldprecludethetransactionscontemplatedby'heBrooklynUnion/LILCOAgreement,ifconsummated,fromqualifyingastransactionstobeaccountedforinaccordancewiththepoolingofinterestsmethodofaccountingundergenerallyacceptedaccountingprinciples.Underthisaccountingmethod,theassetsandliabilitiesofBrooklynUnionandLILCOwillbecarriedforwardtotheconsolidatedfinancialstatementsoftheHoldingCompanyattheirrecordedamounts.ResultsofoperationsoftheHoldingCompanywillincludetheresultsofbothBrooklynUnionandLILCOfortheentirefiscalyearinwhichtheCombinationoccurs.Thereportedbalancesheetamountsandresultsofoperationsoftheseparatecorporationsforpriorperiodswillbecombined,reclassifiedandconformedasappropriate,toreflectthecombinedfinancialpositionandresultsofoperationsfortheHoldingCompany.See"UnauditedProFormaCombinedCondensedFinancialInformation."tIftheCombinationandtheLIPATransactionareconsuminatedcontemporaneously,br'ftheLIPATransactionisconsummatedpriortotheCombination,theCombinationwillbeaccountedforasapurchaseofassetsandan'assumptionofliabilitiesinaccordancewithgenerallyacceptedaccountingprinciples.43 AccountingConsiderationAbsentLIPATransaction.IftheLIPA,Transactionwereterminated,LILCOwouldseekresolutionofitselectricratefilingfortherateyears1997through1999.LILCObelievesthatundersuchcircumstances,thePSCwillissueanelectricrateorderprovidingforamongotherthings,thecontinuingrecoverythrough.ratesoftheratemoderationcomponent,oneoftheShoreham-relatedregulatory.assets.However,ifsuchelectricrateorderisnotobtained,ordoesnotprovideforthecontinuingrecoveryofsomeorallofthisregulatoryassetthroughrates,LILCOmayberequiredtowrite-offtheamountnotexpectedtobeprovidedforinrates.AtMarch31,1997,thebalanceoftheratemoderationcomponentwasapproximately$409.5million.StockExchangeListingoftheHoldingCompanyStockApplicationwillbemadeforthelistingonthe,NewYorkStockExchangeofthesharesofHoldingCompanyCommonStocktobeissuedpursuanttothetermsoftheBrooklynUnion/LILCOAgreement.ThelistingontheNewYorkStockExchangeofsuchshares,subjecttonoticeofissuance,isaconditionprecedenttotheconsummationoftheCombination.SolongasBrooklynUnionandLILCOcontinuetomeettherequirementsoftheNewYorkStockExchange,BrooklynUnionCommonStockandLILCOCommonStock,asthecasemaybe,willcontinuetobelistedontheNewYorkStockExcliangeuntiltheEffectiveTime.SolongasLILCOcontinuestomeettherequirementsofthePacificStockExchange,LILCOCommonStockwillcontinuetobelistedonthePacificStockExchangeuntiltheEffectiveTime.WithrespecttotheseriesofLILCOPreferredStockcurrentlylistedontheNewYorkStockExchange,forsolongasLILCOandsuchpreferredstockcontinuetomeettherequirementsoftheNewYorkStockExchange,suchseriesofpreferredstockwillcontinuetobelistedontheNewYorkStockExchangeaftertheEffectiveTimeintheeventthattheCombinationisconsummatedbuttheLIPATransactionisnotconsummated.FederalSecuritiesLawConsequencesAllsharesofHoldingCompanyCommonStockreceivedbyshareholdersofBrooklynUnionandLILCOintheCombinationwillbefreelytransferable,exceptthatsharesofHoldingCompanyCommonStockreceivedbypersonswhoaredeemedtobe"affiliates"(assuchtermisdefinedundertheSecuritiesActof1933,asamended(the"SecuritiesAct",))of.BrooklynUnionorLILCOpriortotheCombinationmayberesoldbythemonlyintransactionspermittedbytheresaleprovisionsofRule145undertheSecuritiesAct(orRule144undertheSecuritiesAct,inthecaseofsuchpersonswhobecomeaffiliatesoftheHoldingCompany)orasotherwisepermittedundertheSecuritiesAct.PersonswhomaybedeemedtobeaffiliatesofBrooklynUnion,LILCOortheHoldingCompanygenerallyincludeindividualsorentitiesthatcontrol,arecontrolledby,orareundercommoncontrolwith,suchpartyandmayincludecertainofficersand,directorsofsuchpartyaswellasprincipalshareholdersofsuch'party.TheBrooklynUnion/LILCOAgreementalsorequireseachofBrooklynUnionandLILCOtouseallreasonableeffortstocauseeachofitsaffiliatestoexecuteanddelivertotheHoldingCompanyawrittenagreementtotheeffectthatsuchaffiliatewillnotofferorsellorotherwisedisposeof(i)anysharesofBrooklynUnion,LILCOortheHoldingCompanyduringtheperiodbeginning30dayspriortotheEffectiveTinieandcontinuinguntilsuchtimeasresultscoveringatleast30daysofpost-EffectiveTimeoperationsoftheHoldingCompanyhavebeenpublishedor(ii)anyofthesharesofHoldingCompanyCommonStockissuedtosuchaffiliateinorpursuanttotheCombinationinviolationoftheSecuritiesActortherulesandregulationspromulgatedbytheSecuritiesandExchangeCommission(the"SEC")thereunder.ThisJointProxyStatement/ProspectusdoesnotcoverresalesofHoldingCompanyCommonStockreceivedbyanypersonwhomaybedeemedtobeanaffiliateofBrooklynUnion,LILCOortheHoldingCompany.AppraisalRightsSection910oftheNewYorkBusinessCorporationLaw("NYBCL")setsforththerightsofshareholders~ofBrooklynUnionorLILCOwhoobjecttotheadoptionoftheBrooklynUnion/LILCOAgreementor,inthe~caseofshareholdersofLILCO,theLIPAAgreement.AnyrecordholderofBrooklynUnionCommonStockor44 eLILCOCommonStockasoftherecorddatewhodoesnotvoteinfavoroftheadoptionoftheBrooklynUnion/LILCOAgreement,orwhodulyrevokeshisorhervoteinfavoroftheadoptionoftheBrooklynUnion/LILCOAgreement,may,iftheCombinationisconsummated,obtainpayment,incash,forthefairmarketvalueofsuchholder'ssharesbystrictlycomplyingwiththerequirementsofSection623oftheNYBCL.Similarly,anyholderofLILCOCommonStock(unlesstheCombinationoccursbeforetheconsummationoftheLIPATransaction)orLILGOPreferredStockwhodoesnotvoteinfavoroftheadoptionoftheLIPAAgreement,ifentitledtovotethereon,orwhodulyrevokeshisorhervoteinfavoroftheadoptionoftheLIPAAgreement,may,iftheLIPATransactionisconsummated,obtainpayment,incash,forthefairmarketvalueofsuchholder'ssharesbystrictlycomplyingwiththerequirementsofSection623oftheNYBCL.Thefollowingsummaryoftheapplicableprovisionsof:Sections623'and910isnotintendedtobeacompletestatementofsuchprovisionsandisqualifiedinitsentiretybyreferencetothefulltextofSections623and910,copiesofwhichareattachedtothisJointProxyStatement/Prospectusas.AnnexI.ApersonhavingabeneficialinterestinsharesofBrooklynUnionCommonStockorLILCOCommonStockorLILCOPreferredStockthatareheldofrecordinthenameofanotherperson,suchasabrokerornominee,mustactpromptlytocausetherecordholdertofollowthestepssummarized,belowproperlyandinatimelymannertoperfectwhateverappraisalrightsthebeneficialownermayhave.THISSUMMARYANDANNEXISHOULDBEREVIEWEDCAREFULLYBYHOLDERSOFBROOKLYNUNIONCOMMONSTOCK,LILCOCOMMONSTOCKANDLILCOPREFERREDSTOCKWHOWISHTOEXERCISESTATUTORYAPPRAISALRIGHTSORWHOWISHTOPRESERVETHERIGHTTODOSOBECAUSEFAILURETOSTRICTLYCOMPLYWITHANYOFTHEPROCEDURALREQUIREMENTSOFSECTION623ORSECTION910MAYRESULTINATERMINATIONORWAIVEROFAPPRAISALRIGHTSUNDERSECTION623ANDSECTION910.ThedissentingBrooklynUnionshareholdermustfilewithBrooklynUnionbeforethetakingofthevoteontheadoptionoftheBrooklynUnion/LILCOAgreementawrittenobjectionincludinganoticeofelectiontodissent,suchholder'snameandresidenceaddress,thenumberandclassofsliares(BrooklynUnionCommonStock)astowhichsuchholderdissents(whichnumbermaynotbelessthanallofthesharesastowhichsuchholderhasnrighttodissent)andademandforpaymentofthefairvalueofsuchsharesiftheBindingShareExchangesareconsummated.Anysuchwrittenobjectionshouldbeaddressedto:TheBrooklynUnionGasCompany,OneMetroTechCenter,Brooklyn,NewYork11201-3851,Attention:Secretary.ThedissentingLILCOshareholdermustfilewithLILCO,beforethetakingofthevoteontheadoptionoftheBrooklynUnion/LILCOAgreementortheLIPAAgreement,awrittenobjectiontoeitherorbothagreemcntsincludinganoticeof'electiontodissent,suchholder'snameandresidenceaddress,thenumberandclassofshares(CommonorPreferredStock)astowhichsuchholderdissents(whichnumbermaynotbelessthanallofthesharesastowhichsttchholderhasarighttodissent)ahdademandforpaymentofthefairvalueofsuchsharesiftheCombinationorLIPATransactionasthecasemaybeisconsummated.Anysuchwrittenobjectionshouldbeaddressedto:LongIslandLightingCompany,175EastOldCountryRoad,Hicksville,NewYork11801,Attention:CorporateSecretary.ForpurposesofperfectingappraisalrightspursuanttoSection623,thewritten'objectionofaholderofsharesofBrooklynUnionorLILCOwhichisaddressedasprovidedaboveshallbedeemedfiledwithBrooklynUnionorLILCO,asthecasemaybe,uponreceiptofsuchobjectionbyBrooklynUnionorLILCO,asthecasemaybe.NeithervotingagainstnorfailuretovotefortheBrooklynUnion/LILCOAgreement,and,inthecaseofLILCOshareholders,theLIPAAgreement,willconstitutethewrittenobjectionrequiredtobefiledbyanobjectingshareholder.FailuretovoteagainsttheBrooklyn'Union/LILCOAgreement,and,inthecaseofLILCOtshareholders,theLIPAAgreement,however,willnotconstitutea.waiverofrightsunderSections623and910,providedthatawrittenobjectionhasbeenproperlyfiled.AshareholdervotingtoadopttheBrooklynUnion/LILCOAgreement,and,inthecaseofLILCOshareholders,theLIPAAgreement,willbedeemedtohavewaivedsuchshareholder'sappraisalrights.45 ABrooklynUnionorLILCOshareholdermaynotdissentastolessthanallthesharesofBrooklynUnion'rLILCO=stock,asthecasemaybe,entitledtovoteandheldofrecordthatsuchholderbeneficiallyowns.AnomineeorfiduciarymaynotdissentonbehalfofanybeneficialownerastolessthanallthesharesofBrooklynUnionorLILCOstockofsuchbeneficialowner,astowhichsuchnomineeorfiduciaryhasarighttodissent,heldofrecordbysuchnomineeorfiduciary.Furthermore,ifthesharesofBrooklynUnionorLILCOstockareownedofrecordinafiduciarycapacity,suchasbyatrustee,guardianorcustodian,thedemandmustbemadeinthatcapacity,andifthesharesofBrooklynUnionorLILCOstockareownedofrecordbymorethanoneperson,asinajointtenancyortenancyincommon,thedemandmustbemadebyorforallownersofrecord.Anauthorizedagent,includingoneoftwoormorejointowners,mayexecutethedemandforappraisalforaholderofrecord;however,suchagentmustidentifytherecordownerorownersandexpresslystateinsuchdemandthattheagentisactingasagentfortherecordownerorownersofsuchsharesofBrooklynUnionorLILCOstock.Arecordholder,suchasabrokeroranagent,whoholdssharesofBrooklynUtiionorLILCOstockasanomineeforbeneficialowners,someofwhomdesiretodemandappraisal,mustexerciseappraisalrightsonbehalfofsuchbeneficialownerswhodesiretodemandappraisalwithrespecttothesharesofBrooklynUnionorLILCOstockentitledtovoteandheldforsuchbeneficialowners.Withintendaysafterthevoteof'BrooklynUnionandLILCOshareholdersauthorizingtheadoption.oftheBrooklynUnion/LILCOAgreement(andwithrespecttoLILCOonly,theLIPAAgreement),BrooklynUnionandLILCO,mustgivewrittennoticeofsuchauthorizationtoeachdissentingshareholderofBrooklynUnionandLILCO,respectively.Atthetimeoffilingthenoticeofelectiontodissentorwithinonemonththereafter,thedissentingshareholdermustsubmitcertificatesrepresentingsuchholder'ssharestoBrooklynUnionorLILCO,asthecasemaybe,ortheirrespectivetransferagentsfornotationthereonoftheelection'todissent,afterwhichsuchcertificateswillbereturnedtotheshareholder.Anysuchshareholderwhofailstosubmithisorhersharesfornotationwill,attheoptionofBrooklynUnionorLILCO,asthecasemaybe,exercisedbywrittennoticetotheshareholderwithin45daysfromthedateoffilingofthenoticeofelectiontodissent,losesuchholder'sappraisalrightsunlessacourt,forgoodcauseshown,otherwisedirects.Within15daysaftertheexpirationoftheperiodwithinwhichshareholdersmayfiletheirnoticesofelectiontodissentorwithin15daysaftertheEffectiveTime,whicheverislater(butnotlaterthan90daysaftertheshareholders'oteauthorizingtheadoptionoftheBrooklynUnion/LILCOAgreementor,inthecaseofLILCO,theLIPAAgreement},BrooklynUnionorLILCO,asthecasemaybe,mustmakeawrittenoffer(which,iftheCombinationortheLIPATransactionhavenotbeenconsummated,maybeconditioneduponsuchconsummation)toeachshareholderwhohasfiledsuchnoticeofelectiontodissenttopayforsuchholder'ssharesataspecifiedpricewhichBrooklynUnionor.LILCO,asthecasemaybe,considerstobetheirfairvalue.IfBrooklynUnionorLILCO,asthecasemaybe,andthedissentingshareholderareunabletoagreeastosuchvalue,Section623(h)oftheNYBCLprovidesforjudicialdeterminationoffairvalue.Intheeventofsuchadisagreement,acourt,proceedingshallbecommencedbyBrooklynUnionorLILCO,asthecasemaybe,intheSupremeCourtoftheStateofNewYork,CountyofKingsinthecaseofBrooklynUnionorCountyofNassauinthecaseofLILCO,orbythedissentingshareholderifBrooklynUnionorLILCO,asthecasemayPe,failstocommencetheproceedingwithinthetimerequiredbySection623oftheNYBCL.EachofBrooklynUnionandLILCOintendstocommencesuchaproceedingintheeventofsuchadisagreemeqt.UndertheBrooklynUnion/LILCOAgreement,BrooklynUnionandLILCOmayterminatetheBrooklynUnion/LILCOAgreement,evenaftershareholderapproval,ifforanyreasontheBrooklynUnionBoardandtheLILCOBoarddeterminethatitisinadvisabletoproceedwiththeCombination,includingconsideringthenumberofsharesforwhichappraisalrightshavebeen,exercisedandthecosttotheHoldingCompanythereof.UnlesstheLIPATransactionhasbeenconsummated,orwillbeconsummatedcontemporaneouslywiththeCombination,itisaconditionofeachparty'sobligationtoeffecttheCombinationthatithasreceivedaletterfromitsrespectiveaccountantsthatthetransactionwillqualifyasapoolingofintereststransaction.Thepoolingofinterestsmethodofaccountingrequirestliatatleast90percentoftheissuedandoutstandingsharesofBrooklyn,UnionCommonStockandatleast90percentoftheissuedandoutstandingsharesofLILCOCommonStockbeexchangedintheCombinationforsharesofHoldingCompanyCommonStock.46
.MEETINGS,VOTINGANDPROXIEST/usJointProxyStatement/Prospectusisfi(nushedto(i)theholdersofBrooklynUnionConunonStockinconnectionwiththesolicitationofproxiesbytheBrooklynUnionBoardfromtheholdersofBrooklynUnionConunonStockforuseattheBrooklynUtrionMeeting,and(ii)theholdersofLILCOCotnntonStockandLILCOPreferredStockinconnectionwiththesolicitationofproxiesbytheLILCOBoardfromthelioldersofLILCOCommonStockforuseattheLILCOMeeting.LILCOandBrooklynUnionanticipatethatmailingofproxymaterialstotheirrespectiveshareholdersentitledtonoticeofandtovoteattheirrespectivetneetingswillconunenceonoraboutJune30,1997.TheLILCOMeetingGeneral.ThepurposeoftheLILCOMeetingistoconsiderandvoteupon:(i)aproposaltoadopttheBrooklynUnion/LILCOAgreement;(ii)aproposaltoadopttheLIPAAgreement(iii)aproposalt'oclccttwelvedirectors;(iv)aproposaltoratifytheappointmentofErnst&YoungLLPasindependentauditorsforLILCOfortheperiod'fromJanuary1,1997toMarch31,1998;(v)aproposaltoapprovetheLILCOAnnualStockIncentiveCompensationPlan;(vi)aproposaltoapprovetheLILCOEmployeeStockPurchasePlan;(vii)aproposaltoapproveanamendmenttotheLILCOCertificateofIncorporationtoincreasethetotalnumberofauthorizedsharesofLILCOCommonStock;and(viii)suchothermatters,ifany,asmayproperlybepresentedforconsideration.TheLILCOBoarddoesnotknow,asofthedateofmailingofthisJointProxyStatement/Pr'ospectus,ofanyotherbusinesstobebioughtbeforetheLILCOMeeting.TheenclosedproxycardauthorizesthevotingofsharesrepresentedbytheproxyonallothermattersthatmayproperlycomebeforetheLILCOMeeting,andany'adjournmentorpostponementthereof,anditistheintentionoftheproxyholderstotakesuchactioninconnectiontherewithasshallbeinaccordancewiththeirbestjudgment.TheLILCOBoard,byaunanimousvote,hasadoptedtheBrooklynUnion/LILCOAgreeinentandthe.LIPAAgreeme'nt,andrecommendsthatLILCOshareholdersvoteFORapprovaloftheBrooklynUnionAgreementandtherelatedreorganizationofLILCO,FORadoptionoftheLIPAAgreement,FORtheelectionofthenominateddirectors,FORratificationoftheappointmentofErnst&,YoungLLPasLILCO'sindependentauditorsfortheperiodfromJanuary1,1997toMarch31,1998,FORapprovaloftheAnnualStockIncentiveCompensationPlan,FORapprovaloftheEmployeeStockPurchasePlan;andFORapprovaloftheamendmenttoLILCO'sCertificateofIncorporationassetforthabove.Date,PlaceandTitne;RecordDate.TheLILCOMeetingisscheduledtobeheldonThursday,August7,1997at3:00p.m.atTillesCenterforthePerformingArtsatLongIslandUniversityC.W.PostCampus,NorthernBoulevard,Greenvale,NewYork11548.HoldersofrecordofsharesofLILCOCommonStockatthecloseofbusinessonJune26,1997,theRecordDate,willbeentitledtonoticeofandtovoteattheLILCOMeeting.'otingRights.AtthecloseofbusinessonJune23,'997,121,184,527sharesofLILCOCommonStockwereissuedandoutsta'nding.EachoutstandingshareofLILCOCommonStockasoftheRecordDateisentitledtoonevoteuponeachmatterpresentedattheLILCOMeetingexceptwithrespect'totheelectionofLILCODirectorsasdiscussedbelow.Theaffirmativevoteofthc,holdersofatleasttwo-thirdsoftheoutstandingsharesofLILCOCommon,StockisrequiredtoadopttheLIPAAgreementandtoadopttheBrooklynUnion/LILCOAgreementattheLILCOMeeting.Inaddition,theLIPAAgreementmustbeapprovedbythevoteof:1)theholdersofatleasttwo-thirdsoftheoutstandingsharesofLILCOcommonstockandpreferredstockentitledtovotethereon,votingtogetherasasingleclass;2)amajorityoftheoutstandingsharesofLILCOpreferredstockentitledtovotethereon,votingtogetherasaseparateclass;3)amajorityoftheoutstandingsharesofLILCOcommonstockvotingseparatelyasaclass;and4)theholdersofamajorityoftheoutstandingsharesofeachseriesofLILCOpreferredstockentitledtovotethereon,ineachcasevotingseparatelyasaclass.InconnectionwiththeproposaltoadopttheLIPAAgreement,eachoutstandingshareofLILCOCommonStockisentitledtoonevote,eachoutstandingshareofLILCOPreferredStockeligibletovotehavingapar47 valueof$100pershareisentitledtoonevoteandeachoutstandingshareofLILCOPreferredStockeligibletovotehavingaparvalueof$25pershareisentitledtoone-quarter(i/~)ofavote.Amajorityof,thevotingpowerofthesharesissuedandoutstandingandentitledtovote,presentinpersonorbyproxy,isnecessarytoconstituteaquorumforthetransactionofbusinessattheLILCOMeetingexceptwithrespecttotheelectionofLILCODirectors.Abstentionsandbrokernon-votes(i.e.,proxiesfrombrokersornomineesindicatingthatsuchpersonshavenotreceivedinstructionsfromthebeneficialownersorotherpersonsentitledtovotesharesastoamatterwithrespecttowhichbrokersornomineesdonothavediscretionarypowertovote)willbeconsideredpresentforthepurposeofestablishingaquorum.InaccordancewithNewYorkStockExchangerules,brokersandnomineesareprecludedfromexercisingtheirvotingdiscretionwithrespecttotheadoptionoftheBrooklynUnion/LILCOAgreementandLIPAAgreementandthus,absentspecificinstructionsfromthebeneficialownerofsuchshares,arenotempoweredtovotesuchshareswithrespecttotheadoptionoftheBrooklynUnion/LILCOAgreementorLIPAAgreement.Therefore,sincethe'affirmativevoteinpersonorbyproxy,oftheholdersoftwo-thirdsoftheoutstandingsharesofLILCOCommonStockontheRecordDateisrequiredtoadopttheLIPAAgreementandtoadopttheBrooklynUnion/LILCOAgreement,abstentionsandbrokernon-voteswillhavetheeffectofavoteagainsttheLIPATransactionandtherelated'reorganizationofLILCOortheBrooklynUnion/LILCOAgreement,asthecasemaybe.ShareholdersareentitledtovotecumulativelyfortheelectionofLILCODirectors.Eachshareholderisentitledtoanumberofvotesforsuchelectionequaltothenumberofvotesentitledtobecastwithrespecttothesharesheldbysuchshareholdermultipliedbythenumberofdirectorstobeelected,andmaycastallvotesforonenomineeordistributethevotesamongthenominees.TheelectionofeachDirectorshallbedecidedbypluralityvote.Asaresult,anysharesnotvotedforaDirector(whetherbywithholdingauthority,brokernon-voteorotherwise)willhavenoimpactontheelectionofDirectorsexcepttotheextentthatthefailuretovote.foranindividualresultsinanotherindividualreceivingalargernumberofvotes.LTheaffirmativevoteofamajorityofthevotescastbytheholdersofthesharesofLIL'COCommonStockrepresentedattheLILCOMeetingandentitledtovotethereon,votingasasingleclass(providedthatthetotalvotecastrepresentsover50%ofthevotingpowerofallthesharesofLILCOCommonStockentitledtovotethereon)isrequiredtoapprove(i)theratificationoftheappointmentofErnst'0YoungLLPas'LILCO'sindependentauditorsfortheperiodfromJanuary1,1997toMarch31,1998,(ii)'theAnnual'StockIncentiveCompensationPlan,and(iii)theEmployeeStockPurchasePlan.TheaffirmativevoteofamajorityoftheoutstandingsharesofLILCOCommonStockisrequiredtoapprovetheamendmeritoftheLILCOCertificateofIncorporationassetforthinAnnexJhereto.Abstentionsandbrokernon-votesarenot.countedindeterminingthevotescastinconnectionwiththeselectionofauditors.Withrespecttotheremainingmatterstobeactedupon,abstentionsfromvotingonsuchmattersaretreatedasvotesagainst,whilebrokernon-votesaretreatedassharesnotentitledtovote.IfaLILCOshareholderisaparticipantintheLILCOInvestorCommonStockPlan,theLILCOproxy=cardwillrepresentthesharesheldonbehalfoftheparticipantundertheInvestorCommonStockPlanandsuchshareswillbevotedinaccordancewiththeinstructionsontheLILCOproxycard.IfaparticipantintheInvestorCommonStock'PlandoesnotreturnaLILCOproxycard,theparticipant'sshareswillnotbevoted.AsofJune23,1997,directorsandexecutiveofficersofLILCOandtheiraffiliates-ownedbeneficiallyanaggregateof56,683sharesofLILCOCommonStock,orlessthanonepercentofthesharesofLILCOCommonStockoutstandingonsuchdate.DirectorsandexecutiveofficersofLILCOhaveindicatedtheirintentiontovotetheirsharesofLILCOCommonStockinfavorofadoptionoftheBrooklynUnion/LILCOAgreementandoftheLIPAAgreement./See"TheCombination-PotentialConflictsofInterestsofCertainPersonsintheBindingShareExchangesandtheLIPATransaction."VotingandRevocationofProxies.HoldersoftheLILCOCommonStockmayvoteeitherinpersonorbyproperlyexecutedproxy.EachholderofLILCOCommon'Stockwillbefurnishedaproxycarduponwhich48 thenamesofthreeofLILCO'sDirectors,GeorgeBugliarello,JohnH.TalmageandBasilA.Paterson,constitutingtheproxycommittee(the"ProxyCommittee"),appear.Bycompletingandreturningtheformofproxy,theLILCOshareholderauthorizesthepersonsnamedthereintovotealltheLILCOshareholder'ssharesonhisorherbehalf.IssuedandoutstandingsharesofLILCOCommonStock,theholdersofwhichareentitledtovoteattheLILCOMeeting,whicharerepresentedbyproperlyexecutedproxies,will,unlesssuchproxieshavebeenrevoked,bevotedinaccordancewiththeinstructionsindicatedinsuchproxies.Ifaproxyissignedandreturnedwithoutindicatinganyvotinginstructions,sharesofLILCOCommonStockrepresentedbytheproxywillbevotedFORadoptionoftheLIPAAgreement,FORadoptionoftheBrooklynUnion/LILCOAgreement,FORtheelectionofthenominateddirectors,FORratificationof,theappointmentofErnst&YoungLLPasLILCO'sindependentauditorsfortheperiodfromJanuary1,1997toMarch31,1998,FORtheapprovaloftheAnnualStockIncentiveCompensationPlan,FORtheapprovaloftheEmployeeStockPurchasePlan,andFORtheapprovalofanamendmenttotheLILCOCertificateofIncorporation,Withrespecttotheelectionofthenominateddirectors,theProxyCommitteereservestherighttocumulatevotesrepresentedbyproxieswhichtheyreceiveandtodistributesuchvotesamongoneormoreofthenomineesattheirdiscretion.IfaLILCOshareholderwishestogiveaproxytosomeoneotherthantheProxyCommittee,suchshareholdermaycrossoutthenamesofthemembersoftheProxyCommitteeontheproxycardandinsertthenamesofuptothreeother,personsandmake,ifnecessary,otherappropriatechangesprovidingunambiguousinstructionstothepersonorpersonsnamed.ALILCOshareholdermayrevokeaproxyatanytimepriortoitsexerciseattheLILCOMeetingbydeliveringtotheCorporationTrustCompany,P.O.Box631Wilmington,Delaware19899anoticeofrevocationoradulyexecutedproxybearingalaterdateorbyattendingtheLILCOMeetingandvotinginperson.AttendanceattheLILCOMeetingwillnotinitselfconstituterevocationofaproxy.TheLILCOMeetingmaybeadjournedtoanotherdateand/orplaceforanyproperpurpose(including,withoutlimitation,forthepurposeofsolicitingadditionalproxies).Intheirdiscretion,theProxyCommitteeisauthorizedtovoteuponsuchbusinessasmayproperlycomebeforetheLILCOMeeting,includingwithoutlimitation,anymotiontoadjourntheLILCOMeetingtoanothertimeorplace(includingforthepurposeofsolicitingadditionalproxies).Solici/ationofProxies.LILCOwillbearitsownexpensesinconnectionwiththesolicitationofproxiesfortheLILCOMeeting,exceptthateachofLILCOandBrooklynUnionwillpayone-halfofthecostsandexpensesincurredinconnectionwithprintingthisJointProxyStatement/Prospectusandone-halfofallfilingfees.Inadditiontosolicitingproxiesbymail,officersandemployeesofLILCO,withoutreceivingadditionalcompensationtherefor,maysolicitproxiesbytelephone,bytelecopy,bytelegramorinperson.LILCOhasretainedD.F.King&Co.,Inc.toaidinthesolicitatioriofproxiesfromtheLILCOshareholders.Thetotalfeefortheservicesofsuchfirmisnotexpectedtoexceed$30,000,plusreimbursementforreasonableout-of-pocketexpenses.ForinformationabouttheBrooklynUnionMeeting,see"SelectedInformationConcerningBrooklynUnion-TheBrooklynUnionMeeting."49 REGULATORYMATTERSSetforthbelowisasummaryoftfiematerialregulatoryrequirementsaffectingtheCombination.AlthoughthecompanieshavenotyetPledfortheapprovalofalloftheagenciesdiscussed,itisanticipatedthatallregulatoryapprovalswillhavebeenreceivednolaterthantheendof199S.Forinformationconcenu'ngcertainIRSrulings,see"FederalIncomeTaxConsiderations-TaxRulingsRequestedforLIPATransaction."StateA'pprovalsandRelatedMatterstTlieutilityoperationsofbothLILCOandBrooklynUnionaresubjecttothecomprehensiveregulatoryjurisdictionofthePSC,whichmustapprovetheCombinationcontemplatedintheBrooklynUnion/LILCOAgreement.,OnMarch14,1997,LILCOandBrooklynUnionfiledajointpetitionrequestingapprovalofthePSCunderSection70oftheNewYorkPublicServiceLawtoalloweachofthemtobecomesubsidiariesoftheHoldingCompanythroughtheCombination.Section70ofthePublicServiceLawprovidesthatthePSC'sconsenttotheCombinationmaynotbegivenunlessthereisashowingthattheexchangesareinthepublicinterest.Aspartofitsreview,thePSCmayconsidersuchmattersastheeffectoftheCombinationon,theabilityofLILCOandBrooklynUniontocontinuetoprovidesafeandadequateserviceatjustandreasonablerates,includingtheimpactoncustomerservice,ratesandthefinancialintegrityofBrooklynUnionandLILCO,aswellastheimpactonthecompetitiveenvironmentforeachofthecompanies.Inthejointpetition,LILCOandBrooklynUnioneachproposedtorefiectanticipatedcostsavingsresultingfromtheirbusinesscombinationintheretailgasandelectricratesofbothutilities,andtohavethePSCconfirmor'adoptlongtermrateplansforthegasandelectricoperations'fLILCOandthegasoperationsofBrooklynUnion.ByamendmenttothejointpetitionfiledonMay16,1997,inlightofthependencyoftheLIPATransactionwhich,ifconsummated,willresultinLIPA,whichwillnotberegulatedbythePSC,beingthesupplierofretailelectricservicetoconsumersinLILCO'sserviceterritory,LILCO'hasofferedtoextendthesuspensionperiodwithinwhichthePSCmustruleonLILCO'slong-termelectricrateplan,untilDecember31,1997.Assumingtherequisiteregulatoryapprovalsareobtained,theutilityoperationsofbothLILCOandBrooklynUnionwillremainsubjecttoregulationbythePSC.TheHoldingCompanywillbea"publicutilityholdingcompany"underthePublicUtilityHoldingCompanyActof1935(the"HoldingCompanyAct"),discussedingreaterdetailbelow,butwillnotbesubjecttothedirectregulationofthePSC.TheBrooklynUnionandLILCOjointpetitiontothePSConMarch14,1997alsosoughttoamendthePSCOrderdatedSeptember25,1996issuedinconnectionwiththeKeySpanholdingcompanyrestructuringsoastoremoveorrelaxcertainrestrictionsthatmaybeapplicableaftertheCombination.ThePSChasnotacteduponsuchpetitionasofthedateofthisJointProxyStatement/Prospectus,andtherecanbenoassurancethatanyorallofthereliefrequestedinthepetitionwillbegranted.ThePSChasnojurisdictionoverthemergerofLILCOwithasubsidiaryofLIPAaspartoftheLIPATransaction.However,itisanticipatedthatLILCOandtheHoldingCompanywillseekPSCapprovalforthetransferoftheTransferredAssets,aswellasthedebtthatLIPAwillnotbeassuming,tooneormoresubsidiariesoftheHoldingCompany.AftertheLIPAtransaction,thePSCwillhavecontinuingjurisdictionovertheTransfereeSubsidiarythatwillbeconductingthegasdistributionbusinesspreviouslyconductedbyLILCO,andmayhavejurisdictionovertheTransfereeSubsidiarythatownsthenon-nucleargeneratingassetspreviouslyownedbyLILCO,totheextenttliatsuchsubsidiaryengagesinretailtransactions.PublicUtilityHoldingCompanyActof1935AsaresultoftheCombination,theHoldingCompanywillownallofthecommonstockofbothLILCO(iftheLIPATransactionisnot'consummated)andBrooklynUnionandwillthereforebeapublicutilityholdingcompanyundertheHoldingCompanyAct,subjecttothejurisdictionoftheSEC.Additionally,iftheLIPATransactionisconsummated,theHoldingCompanywillownallofBrooklynUnionCommonStockandaTransfereeSubsidiarythatwillconductthegasdistributionbusinessnowbeingconductedbyLILCO.Accordingly,theHoldingCompanymustapplyforandobtaintheapprovaloftheSECundertheHoldingCompanyAct.However,theHoldingCompanywillfileanexemptionstatementwiththeSECtoexemptitself50 andeachofitssubsidiariesfrommostoftheprovisionsoftheHoldingCompanyAct.ThebasisfortheexemptionisthattheHoldingCompany,LILCO(ortheTransfereeSubsidiarythatwillsucceedtothegas'istributionbusinesscurrentlyconductedbyLILCO)andBrooklynUnionare"predominantlyintrastateincharacter,"inthateachofthemisorganized,andLILCO(orthesuccessorsubsidiary)andBrooklynUnioneachcarryontheirrespectivebusiness~substantially,inNewYorkState.TheSEChasauthorityundertheHoldingCompanyActtochallengetheavailabilityofsuchexemptiontotheHoldingCompany.FederalPowerActLILCOissubjecttotheregulatoryjurisdictionoftheFederalEnergyRegulatoryCommission("FERC",)undertheFederalPowerAct(the"FPA")withrespecttocertainwholesaleelectricsalesandtransmissionservices.Section203oftheFPAprovidesthatnopublicutilityshallsellorotherwisedisposeofitsjurisdictionalfacilitiesor,directlyorindirectly,mergeorconsolidatesuchfacilitieswiththoseofanyotherpersonoracquireanysecurityofanyotherpublicutilitywithouthavingfirstobtainedauthorizationfromtheFERC.Accordingly,theapprovaloftheFERCisrequiredtoconsummatetheCombination,andis,similarly,requiredtoapprovethetransferofLILCO'sFERC-jurisdictionalassetstoLIPAinconnectionwiththeLIPATransaction.PursuanttoSection203oftheFPA,theFERChastheauthoritytoapprovetheCombinationandtheBrooklynUnion/LILCOAgreementasbeingconsistentwiththepublicinterest.Inaddition,therates,terms,andconditionsofservicethatwillbeprovidedtoLIPAunderthePowerSupplyAgreement(asdefinedherein)willrequireFERCapprovalunderSection205or206oftheFPAaswillanyotherHoldingCompanyservicethatisdeemedtobeFERCjurisdictional.AntitrustConsiderationsUndertheHart-Scott-RodinoAntitrustItnprovementsActof1976,asamended(the"HSRAct"),andtherules,andregulationspromulgatedthereunder,theCombinationmaynotbeconsummateduntiltherequisitenotificationsandreportformshavebeenfiledwiththeAntitrustDivisionoftheDepartmentofJustice(the"AntitrustDivision")andtheFederalTradeCommission(the"FTC")andthespecifiedHSRActwaitingperiodrequirementshavebeensatisfied.TheHSRActwaitingperiodis30daysfromthedatebothpartieshavefiledtheirnotificationandreportformunlessterminatedearlierorextendedbytheFTCortheAntitrustDivisionissuingarequestforadditionalinformationordocumentarymaterials.Ifsuchrequestismade,thewaitingperiodwillexpire,unlessterminatedearlier,at11:59p.m.,NewYorkCity'ime,onthetwentiethcalendardayafterbothpartieshavesubstantiallycomplied"withsuchrequest.Thereafter,thewaitingperiodmaybeextendedonlybycourtorderorwiththeparties'onsent.TheexpirationorearlierterminationoftheHSRActwaitingperioddoesnotprecludetheAntitrustDivisionortheFTCfromchallengingtheCombinationonantitrustgroundseitherbeforeorafterconsummationoftheCombination.Privatepartiesandstateattorneysgeneralmayalsobringlegalactionunderfederalorstateantitrustlawsundercertaincircumstances.IIftheCombinationisnotconsummatedwithin12monthsaftertheexpirationorearlierterminationoftheHSRActwaitingperiod,LILCOandBrooklynUnionwouldberequiredtosubmitnewfilingstotheAntitrustDivisionandtheFTC,andanewHSRActwaitingperiodwouldhavetoexpireorbeearlierterminatedbeforetheCombinationcouldbeconsummated.LILCOandBrooklyn'nionintendtofiletheirpremergernotificationandreportformspursuanttotheHSRActatsuchtimeastheybelievethereisahighdegreeofcertaintythattheCombinationwillbeconsummatedwithin12monthsaftertheexpirationorearlierterminationofthewaitingperiodundertheHSRAct.TheFTGandtheAntitrust'Divisionfrequentlyscrutinizethelegalityundertheantitrustlawsoftransactionssuchastheproposedtransaction.NeitherLILCOnorBrooklynUnionb'elievesthattheCombinationwillviolatefederalantitrustlaws.Nevertheless,ther'anbenoassurancethata'challengetotheproposedtransactionwillnotbemadeonantitrustgroundsor,ifsuchcliallengeismade,whattheresultwouldbe.tahepartiesintendtoseekconfirmationfromthestaffoftheFTCand'heAntitrustDivisionthatconsummationoftheLIPATransactionisexemptundertheHSRAct.Ifsuchconfirmationcannotbeobtained,appropriatefilingswillbemadewithsuchagencies.51 AtomicEnergyActOperationofNineMilePoint2,'nuclearpowerplantinwhichLILCOhasan18%ownershipinterest,iss'ubjecttoregulationbytheNuclearRegulatoryCommission("NRC").The'AtomicEnergyActof1954(the"AtomicEnergyAct")providesthatsuchanownershipinterestmaynotbetransferred'orinanymannerdisposedof,directlyorindirectly,toanypersonthroughtransferof'controlunlesstheNRCfindsthatsuchtransferisinaccordancewiththeAtomicEnergyActandconsentstothetransfer.PursuanttotheAtomicEnergyActandtheLIPAAgreement,LILCOwillseekapprovalfromtheNRCasnecessary.PublicAuthoritiesControlBoardApprovalTheLIPATransactionissubjecttotheapprovalofthePACB.ThePACB,createdpursuanttoNewYorkStatePublicAuthoritiesLaw("PAL"),consistsoffivepersonsappointedbythegovernor,ofwhichoneisupontherecommendationofthemajorityleaderoftheNewYorkStateSenate,oneupontherecommendationoftheSpeakeroftheNewYorkStateAssembly,oneupontherecommendationoftheminorityleaderoftheNewYorkStateSenateandoneupontherecommendationoftheminorityleaderoftheNewYorkStateAssembly.ThemembersappointedbythegovernorupontherecommendationoftheminorityleaderoftheSenateandtheminorityleaderoftheAssemblyarenon-votingmembers.Theunanimousvoteofthevotingmembers"oftheboardisrequiredtoauthorizeactionbythePACB.Pursuantt6PAL,LIPAmaynotundertakeanyprojectwithouttheapprovalofthePACB."Project"isdefinedtomeananactionundertakenbyLIPAthat:(i)causesLIPAtoissuebonds,notesorother'obligations,orsharesinanysubsidiarycorporation,or(ii)significantlyinodifiestheuseofanassetvaluedatmorethanonemilliondollarsownedbyLIPAorinvolvesthesale,leaseorotherdispositionofsuchanasset,or(iii)commitsLIPAtoacontractoragreementwithatotalconsiderationofgreaterthanonemilliondollarsanddoesnotinvolvethedaytodayoperationsofLIPA.Th'ePACBshallonlyapproveaprojectproposedbyLIPAuponitsdeterminationthat:(1)theprojectis,financiallyfeasibleasthestandardisdefinedinPAL;articleone-5;(2)theprojectdoesnotmateriallyadverselyaffectoverallrealpropertytaxesintheservicearea;(3)theprojectisanticipatedtoresultgenerallyinlowerutilityratesintheservicearea;~and(4)theprojectwillnotmateriallyadverselyaffectoverallrealpropertytaxesorutilityratesinotherareasof~thestateofNewYork.GeneralLILCOandBrooklynUnionpossessmunicipalfranchisesandenvironmentalpermitsandlicensesthatmayneedtoberenewedorreplacedasaresultoftheCombination.Thecompaniesdonotanticipateanydifficultiesatthepresenttimeinobtainingsuchrenewalsorreplacements.UndertheBrooklynUnion/LILCOAgreement,LILCOandBrooklynUnionhaveagreedtouse"reasonableeffortstoobtainallnecessarymaterialpermits,licenses,franchisesandothergovernmentalauthorizationsneededtoconsummateoreffectthetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement.Inaddition,,undertheLIPAAgreement,eachofthepartiestheretohasagreedtosimilarlyusereasonableeffortstoobtainallsuchrequiredauthorizationsandapprovalsneededtoconsummateoreffectthetransactionscontemplatedbytheLIPAAgreement.VariouspartiesmayseekinterventionintheproceedingsassociatedwiththeregulatoryapprovalprocessinanattempttoopposetheCombinationandtheJ.IPATransactionortohaveconditionsimposeduponthereceiptofthenecessaryapprovals.AlthoughLILCOandBrooklynUnionbelievethattheywillreceivetherequisiteregulatoryapprovalsfortheCombinationandtheLIPATransaction,thetimingoftheirreceiptcannotbedetermined.ItisaconditiontotheconsummationoftheCombinationthatfinalordersapprovingtheCombinationbeobtainedfromthevarious'federalandstatecommissionsdescribedabove,including(iftheLIPA.TransactionwillnotbeconsummatedsubstantiallycontemporaneouslywiththeCombination)thePSC'sfinalorderapprovingalong-termrateplan,ontermsandconditions(x)whichwouldnothave,orwouldnotbereasonablylikelytohave,amaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsoftheHoldingCompanyanditsprospectivesubsidiariestakenasawhole,or(y)whichwouldnotbemateriallyinconsistentwiththeagreementsofthepartiescontainedintheBrooklynUnion/LILCOAgreement.Forpurposesoftheabove-referencedconditionwithrespecttothePSC's52 finalorder,theprospectsoftheHoldingCompanyanditssubsidiarieswillmeanthecombinationoftheresultsanticipatedbycertainregulatedearningsforecastsofBrooklynUnion"andLILCOwhich'thepartiespreviouslyprovidedtoeachother.ItisaconditiontotheconsummationoftheLIPATransactionthatfinalordersapprovingtheLIPATransactionbeobtainedfromthevariousfederalandstatecommissionsdescribedaboveontermsandconditions(i)whichwouldnothave,orwouldnotbereasonablylikelytohave,amaterialadverseeffectonthebusiness,assets,financialconditionorresultsofoperationsoftheHoldingCompany,'(ii)whichwouldnotbemateriallyinconsistentwiththeagreementsofthepartiescontainedintheLIPAAgreementorintheotherBasicAgreements(asdefinedherein)or(iii)whichwouldnothave,orwouldnotbereasonablylikelytohave,amaterialadverseeffectontheRetainedAssets(asdefinedherein)ortheproperties,business,operations,financialconditionso'rprospectsofthebusinessrelatingtotheRetainedAssetstakenasawholeoramaterialadversedeclineintheelectricratesavingsprojectedtoberealizedaftertheconsummation"oftheLIPATransaction.AtanytimepriortotheEffectiveTime,totheextentpermittedbyapplicablelaw,.theconditionstoBrooklynUnion'sorLILCO'sobligationstoconsummatetheCombinationmaybewaivedbythe,parties.Anydeterminationtowaiveaconditionwoulddependuponthefactsandcircumstancesexistingatthetimeofsuchwaiverandwouldbemadebythewaivingparty'sBoardofDirectors,exercisingitsfiduciarydutiestosuchpartyanditsshareholders.LILCOandBrooklynUnionhavealsoagreedundertheBrooklynUnion/LILCOAgreementtonotifyeachotherofanychangesintheirapprovedratesorcharges(otherthanpass-throughfuelandgasratesorcharges),standardsofserviceoraccounting,andnottomakeanyfilingtochangeitsratesonfilewiththePSCthatwouldhaveamaterialadverseeffectonthebenefitsassociatedwiththeCombination.TheHoldingCompanyandLILCOhaveagreedundertheLIPAAgreementtonotifyLIPAorLIPASubofanychangesintheirratesorcharges(otherthanpass-throughfuelratesorcharges,butincluding,withoutlimitation,gasratesorcharges),standardsofserviceoraccounting.LILCOhasalsoagreedundertheLIPAAgreementthatitwillnot,withouttheconsentofLIPA,fileorprosecuteanyratecaseorothernonroutineproceedingbeforethePSCorFERCoranyappealtherefrom,exceptforcasesorproceedings(i)relatingsolelytopass-throughfuelorgasratesorcharges,(ii)requiredtobemadebyorderofthePSCorFERC,(iii)relatings'olelytotheTransferredAssets,(iv)involvingcommercialorcontractualdisputeswhicharerequiredtoberesolvedthroughsuchproceedingsor(v)amatterthatLILCOreasonablybelievesthreatensthefinancialviabilityofLILCO.LILCOisrequiredtoprovidereasonablepriornotice(including,uponrequestofLIPA,copiesofdmftdocumentation)ofanyproposedfilingwiththePSCorFERC.53 UNAUDITEDPROFORMACONSOLIDATEDCONDENSEDFINANCIALINFORMATIONBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION(PURCHASE)ThefollowingunauditedproformafinancialinformationrefiectsadjustmentstothehistoricalfinancialstatementsofLILCOtogiveeffecttotheproposedtransferofLILCO'sgasandgenerationbusinesstosubsidiariesoftheHoldingCompany,theproposedstockacquisitionofLILCObyawhollyownedsubsidiaryofLIPAandtheproposedCombinationwithBrooklynUnionin,accordancewiththeCombination.Theunauditedpro,formaconsolidatedcondensedbalancesheetatMarch31,1997giveseffecttotheproposedLIPATransactionandtheCombinationasiftheyhadoccurredatMarch31,1997.TheunauditedproformaconsolidatedcondensedstatementofincomeforthetwelvemonthperiodendedMarch31,1997giveseffecttotheproposedLIPATransactionandtheCombinationasiftheyhadoccurredatAprilI,1996.Thesestatementsareprepared.onthebasisofaccountingfortheCombinationunderthepurchasemethodofaccountingandarebasedontheassumptionssetforthinthenotesthereto.InApril1997LILCOchangeditsyear-endfromDecember31toMarch31Thefollowingproformafinancialinformationhasbeenpreparedfrom,andshouldbereadinconjunctionwith,theLIPAAgreement(AnnexD),andthehistoricalconsolidatedfinancialstatementsandrelatednotestheretoofBrooklynUnionandLILCO,incorporatedbyreferenceherein.ThefollowinginformationisnotnecessarilyindicativeofthefinancialpositionoroperatingresultsthatwouldhaveoccurredhadtheproposedLIPATransactionandtheCombinationbeenconsummatedonthedate,oratthebeginningoftheperiod,forwhichtheproposedLIPATransactionandtheCombinationarebeinggiveneffectnorisitnecessarilyindicativeoffutureoperatingresultsorfinancialposition.54 HOLDINGCOMPANY"UNAUDITEDPROFORMACONSOLIDATEDCONDENSEDBALANCESHEET~March31,1997(InMillions)49LILCO(Historical)BrooklynUnion/LILCOLIPATransactionAsAdjustedCombinationBrooklynSaletoProFormaLILCOUnionProFormaLIPA(I)AdjustmentsAsAdjusted(Historical)AdjustmentsHoldingCompanyProFormaASSETSPropertyUtilityPlantElectric4GasCommonConstructionworkinprogress................Nuclearfuelinprocessandinreactor..........Less-Accumulateddepreciationandamortization.Gasexplorationandproduction,atcost.;.....,...Less-Accumulateddepletion................TotalPropertyCostinExcessofNetAssetsAcquired,nct......RegulatoryAssetsBasefinancialcomponent(lessaccumulatedamortizationof$782.5)Ratemodetationcomponent....................Shoiehampost-settlemcntcosts...............,..RegulatorytaxassetPostretirementbenefitsotherthanpensions........OtherTotalRegulatoryAssets....................utilityPropertyandOtherInvestments...'..rrcntAssetsCashandcashequivalents........,............Deferredtax'sset.....Accountsreceivableandaccruedrevenues........Othercurrentassets.TotalCurrentAssets.DeferredCliargcs.ContractualreceivablefromLIPA.............TotalAssets$3,900.21,171.2263.3108.915.5(1,759.1)3,700.03,256.3409.5996.31,767.2357.7456.07,243.018.964.593.3489.9162.5810.277.6$11,849.7$2,821.252.415.5(854.7)2,034.43,256.3409.5996.31,767.2334.26,763.514.193.3.327.51.3422.152.5$9,286.6(300.7)(2)(300.7)2,432.3(3)119.0(4)19.4(2)2,570.7281.3(2)$2,551.3$1,079.01,171.'2263.356.5(904.4)1,665.657.0121.8178.84.82,496.8119.0181.8161.22,958.825.1281.3$5,114.4$-1,805.9(440.1)563.9(188.3)1,741.4156.952.5422.1474.6120.9$2,493.8308.0(6)74.1(5)74.1(74.1)(5)$308.0$1,079.02,977.1263.356.5(1,344.5)563.9(188.3)3,407.0308.074.157.0121.8252.916L72,549.3119.0181.8583.33,433.471.9281.3$7,916.2CAPITALIZATIONANDLIABILITIESCapitalizationCommonShareholders'quity..................Long-termdebtPreferredstock.TotalCapitalization.RegulatoryLiabilities.CurrentLiabilitiesAccountspayableandaccruedexpenses..........Accruedtaxes(includingfederalincometax)......Othercurrentliabilities.TotalCurrentLiabilities..........~.4.......DcferrcdCreditsDeferredfederalOther.TotalDefeOperatingReseCommitmentsinorityInteTotalCapi$2,549.14,457.0702.17,708.2562.8$2,457.33,459.8339.16,256.2529.7230.251.1332.6613.9122.765.5188,2incometax....................2,420.52,299.0110.420.5riedCredits.....................2,530.92,319.5rvcs.433.9(7.0)nndConlln8eneles..............restlnSnbslrpsryCompnny.......talizatlonandLiabilities........$11,849.7$9,286.6SeeaccompanyingNotestoUnauditedProForma$2,432,3(3)(75.0)(15)75.0(15)2,432.3399.0(4)399.0(280.0)(4)(280.0)$2,551.3Consolidated$2,524.1922.2438.03,884.333.1107.5450.1267.1824.7(158.5)89.9(68.6)440.9$5,114.4Condensed$1,004,1724.66.31,735.0165.868.674.9309.3309.757.7367.482.1$2,493.8Financial60.8(6)(7)334.1518.7(.3)(7>341.760.51,194.5$308.0Statements.151.2147.6298.8440.982.1$7,916.2$253.8(6)(7)$3,782.01,646.8(6.3)(7)438.0247.55,866.833.155 HOLDINGCOMPANYUNAUDITEDPROFORMACONSOLIDATEDCONDENSEDSTATEMENTOFINCOMEFortheTwelveMonthsEndedMarch31,1997(InMillionsExceptPerShareAmounts)0SaleProLILCOBrooklynHoldingLILCOtoFormaAsUnionProFormaCompany(Historical)LIPA(1)AdjustmentsAdjusted(Historical)AdjustmentsProFormaRevenuesElectricGas-UtilitysalesGasproductionandother......,.....,......TotalRevenues.$2,465.0672.73,137.7$1,520.2(10)$11.5(8)$956.3672.71,520.211.51,629.0$1,338.7134.11,472.8$956.32,011.4134.13,101.8OperatingExpensesOperations-fuelandpurchasedpower.......Operations-other.Maintenance.Depreciation,depletionandamortization....Basefinancialcomponentamortization......Ratemoderationcomponentamortization....Regulatoryliabilitycomponentamortization.Otherregulatoryamortization......,.......Operatingtaxes.FederalincometaxesTotalOperatingExpenses..OperatingIncome.OtherIncomeand(Deductions).......IncomeBeforeInterestCharges.......InterestCharges..NctIncome.,Preferredstockdividendrequirements...EarningsforCommonStock...,.....AverageCommonSharesOutstanding954.8372.8117.1155.0101.0(3.0)(88.6)112.3469.6210.62,401.6736.121.5757.6435.2322,452.1$270.3120.615.0220.569.3100.7101.0(30)(88.6)96.1280.7160.8952.5567.731.7599.4349.9249.539.9$209.6120.6939.8152.347.854.3627.2367.260.292.97.1(9)7.14.416.2188.956.91,456.2172.8148.745.61,341.8131.0(7.6)(9)77.712.084.923.735.9$(1147)(11)$49.0120.6120.647.9128.8(16)0.3$128.549.8(10.2)45.74.4162.6176.77.7(6)77(7.7)(7.7)(7.7)(0.3)(7)$(7.4)(14.5)1,567.0519.5108.0154.916.2337.6102.542,805.7296.1-.,",:125.6206.035.9$170.1155.9EnrningsperCommonandEquivalentShares$2.24$1.74$(.09)$0.41$2.58$1.09444SeeaccompanyingNotestoUnauditedProFormaConsolidatedCondensedFinancialStatements.56 e~'otestoUnauditedProFormaConsolidatedCondensedFinancialStatementsThehistoricalfinancialstatementsofLILCOhavebeenadjustedtogiveeffecttotheproposedtransactionwithLIPA,pursuanttowhichLILCOwilldistributecertainofitsnetassetsrelatingtoitsgasandgenerationbusiness("TransferredAssets")tosubsidiariesoftheHoldingCompany.LIPAwillthenacquireLILCOinastocksale,TheadjustmentsarebaseduponadisaggregationofLILCO'sbalancesheetandoperationsasestimatedbythemanagementofLILCO,andaresubjecttoadjustmentpursuanttothetermsoftheLIPAagreement.Inconnectionwiththistransaction,theprincipalassetstobeacquiredbyLIPAthroughitsstockacquisitionofLILCOincludetheelectrictransmissionanddistributionsystem(,"TheLIPATransmissionandDistributionSystem");LILCO's18%interestinNineMilePoint2nuclearpowerstation,certainofLILCO'sregulatoryassetsassociatedwithitselectricbusinessandanallocationofaccountsreceivableandotherassets.TheprincipalliabilitiestobeassumedbyLIPAincludeLILCO'sregulatoryliabilitiesassociatedwithitselectricbusiness,aportionofLILCO'slong-termdebtandanallocationofaccountspayable,accruedexpenses,customerdeposits,otherdeferredcreditsandclaims.InconnectionwiththeLIPATransaction,LIPAiscontractuallyresponsibleforreimbursingtheHoldingCompanyforpostretirementbenefits,otherthanpensioncosts,relatedtoemployeesofLILCO'selectricbusiness.Aproformaadjustmenthasbeenreflectedtoreclassifytheassociatedregulatoryassetforpostretirementbenefitsotherthanpensionstocurrentandnon-currentaccountsreceivablepursuanttoLIPA'sobligationtoasubsidiaryoftheHoldingCompany.TheCashPurchasePricetobepaidbyLIPAinconnectionwithitsstockacquisitionofLILCOwillbe$2,497.5million.TheCashPurchasePricewasdeterminedbasedupontheestimatednetbookvalueoftheLILCORetainedAssetsof$2,500.8millionasestimatedbyLILCOinaprojectedbalancesheetasofDecember31,1997.BaseduponthebalancesheetasofMarch31,1997,thenetbookvalueoftheLILCORetainedAssetsamountedto$2,457.3million.Inaddition,theLIPATransactionobligatestheHoldingCompanyupontheclosingofthetransactiontoremittoLIPA$15millionassociatedwiththerecoverythroughlitigationofcertainrealestatetaxespreviouslypaid.Transactioncostsarecurrentlyestimatedtobe$10million.AssumingtheLIPATransactionwascompletedonMarch31,1997,thenetcashtobereceivedbytheHoldingCompanywouldamountto:CashPurchasePrice.CashpaidtoLIPA..TransactionCostsNetCash.$2,457.3(15.0)(10.0)$2,432.3,4,5.ThedistributionoftheTransferredAssetsfromLILCOtosubsidiariesoftheHoldingCompanywillresultintheimpositionoffederalincometaxesonLILCO;PursuanttotheLIPAAgreement,the'subsidiariescreatedbytheHoldingCompanytoreceivetheTransferredAssetswillreceivethebenefitoftheincreasedtaxbasisoftheTransferredAssetsandwillpaytheLILCOtax.IftheLIPATransactionweretohaveoccurredatMarch31,19/7,thetaxwouldhaveamountedtoapproximately$400million.Thetaxisderivedfromthedifferencebetweentheestimatedfairvalueofthedistributedassetsandtheirexistingtaxbasis.Forfinancialreportingpurposes,thesubsidiariesreversedtheexistingdeferredtaxliabilityof$280millionrelatingtotheTransferredAssetsandrecordeda,$119milliondeferredtaxassetrefiectingtheincometaxeffectbywhichthetaxbasisoftheTransferredAssetsexceededtheirbookbasis.TheunauditedproformacondensedconsolidatedbalancesheetasofMarch31,1997refiectsthereclassificationof$74.1millionofBrooklynUnion,regulatorytaxassetsfromdeferredchargestoregulatoryassetsinordertoconsistentlypresenttheregulatoryassets.ofBrooklynUnionandLILCO.57 ThepurchasepriceforBrooklynUnionatMarch31,1997,whichamountedtoapproximately$1.245billionincludingapproximately$54.1millionoftransactioncosts,hasbeendeterminedbaseduponanaverageofLILCO'sopeningandclosingstockpricesforthetwotradingdaysbeforeandthreetradingdaysafterDecember29,1996.Thepurchasepricehasbeenallocatedtoassetsacquiredandliabilitiesassumedbasedupontheirestimatedfairvalues.Itisanticipatedthatthefair'valueoftheutilityassetsacquiredisrepresentedbytheirbookvalue,whichapproximatesthevalueoftheseassetsrecognizedbyTheNewYorkStatePublicServiceCommissioninestablishingrateswhicharedesignedto,amongotherthings,provideforareturnonthebookvalueoftheseassetsandtherecoveryofcosts'includedasdepreciationandamortizationcharges.TheestimatedfairvaluesofBrooklynUnion'snon-utilityassetsapproximatetheircarryingvalues.BothBrooklynUnionandLILCOwillseekPSCapprovalforrecoveryoftransactioncosts.\Baseduponcurrentinformation,thepurchaseprice,includingmerger-relatedtransactioncosts,exceedsthefairvalueofthenetassetsacquiredby$308.0million,whichwillbeamortizedtoincomeover40years.InconnectionwiththeformationofKeySpan,BrooklynUnionwillredeemitsoutstandingpreferredstockitapremiumof2%pertermsoftheoriginalissuanceagreement.Asaresult,accountspayablehasbeenadjustedtoreflectapayableof$6.7millionincludingpremiumsof$0.1millionwhichhavebeenchargedtoCommonShareholders'quity.I8.TheagreementwithLIPAincludesaprovisionfortheHoldingCompanytoearnintheaggregateapproximately$11.5millioninannualmanagementservicefeesfromLIPAforthemanagementoftheLIPATransmissionandDistributionSystemandthemanagementofallaspectsoffuelandpowersupply.Theseagreementsalsocontaincertainincentiveandpenaltyprovisionswhichcouldmateriallyimpactearningsfromsuchagreements.9.Theprofoimachargeof$7.1millionrepresentstheincometaxeffectassociatedwiththerecordingoftheproformaadjustmeritsforthe$11.5millionmanagementfee(seeNote8),andareductionininterestexpenseofapproximately$7.6millionassociatedwiththerecapitalizafionofthesubsidiarywhichcontainsthegasandgenerationbusinesses.10.RevenuesforbothtlteassetsacquiredbyLIPAandtheTransferredAssetsweredeterminedbaseduponarevenue'requirementsmodelwhichconsideredthecostofservicefortheseassetsandareturnon,capitalizationbaseduponanimputedallowedrateofreturn.11.Noadjustmentshavebeenmadetoearningsoncommonstocktorellectearningsonnetavailableproceedsofapproximately$1.7billiontobereceived,afterremittancestotheHoldingCompany'sgasandgenerationsubsidiariesforworkingcapitalpurpo'ses(seeNotes3and12).Ifthesefundswereinve'stedat7%(the30yearUSTreasuryBondyieldbasedonrecentprices),theHoldingCompanywouldhaverealizedadditionalinterestincome,netoftaxes,ofapproximately$77.3million,orapproximately$.49pershare,onaconsolidatedbasis.Eachonepercentchangeintheassumedinterestrate,wouldincrease/decreaseinterestincome,netoftaxes,by$11.0million.LILCO'sallowedrateofreturnonitscommonequityforitselectricbusinessiscurrently11%.C12SubsequenttothesaletoLIPA,aportionoftheproceedstobereceivedbytheHoldingCompanywillberemittedtoLILCO'sgasandgenerationsubsidiariesinordertomeetthesubsidiariesworkingcapitalneeds.Suchproposedtransactionhasbeeneliminated'intheconsolidationprocess.,13.'heallocationbetweenBrooklynUnionandLILCOandtheircustomersoftheestimatedcostsavingsresultingfromtheCombination,netofthecostsincurredtoachievesuchsavings,willbesubjecttoregulatoryreviewandapproval.Noneoftheestimatedcostsavings,havebeenreflectedintheunauditedproformaconsolidatedcondensedfinancialstatements.14.TheunauditedproforrnacombinedcondensedfinancialstatementsreflecttheexchangeofeachshareofLILCOCommonStockoutstandinginto0.880sharesofHoldingCompanyCommonStockandtheconversionofeachshareofBrooklynUnionCommonStockoutstandingintooneshareofHoldingCompanyCommonStock,asprovidedintheBrooklynUnion/LILCOAgreement.58 15.Asmorefullydescribedinthesectionentitled"TheLIPATRANSACTION-AgreementandPlanofMerger,"LILCOwilltransfertheTransferredAssetstosubsidiariesoftheHoldingCompanyinexchangeforsharesoftheHoldingCompanycommonstockandupto$75millionfaceamountofHoldingCompanyPreferredStock.TheprivatelyplacedPreferredStockwillbenon-voting,non-convertibleandhaveafive-yearterm.Forpurposesoftheseproformafinancialstatements,itisassumedthattheHoldingCompanywillissue$75millionofPreferredStock,LIL'COwillsellthepreferredstockfor$75millioninproceedsandwillretaintheproceeds(i.e.,aRetainedAsset).4Witha$75millionincreaseintheRetainedAssets,theLIPAAgreementprovidesthattheRetainedDebtwillincreasebyacorrespondingamount.TheLIPAAgreementalsoprovidesthatiftheHoldingCompanyweretoissueanamountotherthan$75millionofPreferredStock,theincrementaldifferencebetweentheamountactuallyissuedand$75million,willresultinacorrespondingincreaseordecreaseintheamountofaccountspayableretainedbyLILCO.Theseproformafinancialstatementsreflectareductionininterestexpenseforthereducedlevelofsubsidiarydebt,andtoreflectanincreaseinpreferredstockdividendrequirements.Finally,forpurposesoftheseproformafinancialstatements,itisassumedthatthedividendrateonthisprivatelyplacedPreferredStockwillbe7.95%,whichisequaltotheCompany'shighestcostpreferredstock.416.TheBrooklynUnionearningsforthe12monthperiodendedMarch31,1997include-non-recurringincomeaggregatingapproximately$33.5million,netoftaxes,or$0.68pershare,relatingtogainsontheinitialpublicofferingofasubsidiary'sstockandthesaleofaninvestmentinaCanadianplant.Thisincomewaspartiallyoffsetbya$7.8millioncharge,netoftaxes,or$0.16pershare,relatingtoreorganizationexpensesincurredbythesubsidiary.59 UNAUDITEDPROFORMACOMBINEDCONDENSEDFINANCIALINFORMATIONBROOKLYNUNION/LILCO.COMBINATION(POOLING)-Thefollowingunauditedproformafinancialinformationcombinesthehistoricalconsolidatedbalancesheetsandstatementsof,incomeofBrooklynUnionandLILCOincludingtheirrespectivesubsidiaries,aftergivingeffecttotheCombination.BrooklynUnion'sbalancesheetasofMarch31,1997andresultsofoperationsforeachofthe12monthperiodsinthethree,yearperiodendedMarch31,1997havebeencombinedwithLILCO,'sbalancesheetasofMarch31,,1997andresultsofoperationsforeachofthe12monthperiodsinthethreeyearperiodendedMarch31,1997toarriveattheunauditedproformacombinedcondensedbalancesheetasofMarch31,1997andthestatementsofincomeforeachofthe12monthperiodsendedMarch31,1997.TheunauditedproformacombinedcondensedbalancesheetatMarch31,1997giveseffecttotheCombinationasifithadoccurredatMarch31,1997.Theunauditedproformacombinedcondensedstatementsofincomeforeachofthe12monthperiodsinthethreeyearperiodendedMarch31,1997giveeffecttotheCombinationasifithadoccurredatApril1,1994.Thesestatementsarepreparedonthebasis.ofaccountingfortheCombinationasapoolingofinterestsandarebasedontheassumptionssetforthinthenotesthereto.ItshouldbenotedthatinApril1997LILCOchangeditsyear-endfromDecember31toMarch31.-Thefollowingunauditedproformafinancialinformationhasbeenpreparedfrom,andshouldbereadinconjunctionwith,thehistoricalconsolidated=financialstatementsandrelatednotestheretoofBrooklynUnionandLILCO,incorporatedbyreferenceherein.ThefollowinginformationisnotnecessarilyindicativeofthefinancialpositionoroperatingresultsthatwouldhaveoccurredhadtheCombinationbeenconsummatedonthedate,oratthebeginningofthe"period,forwhichtheCombinationisbeinggiveneffectnorisitnecessarilyindicativeoffutureoperatingresultsorfinancialposition.60 HOLDINGCOMPANYUNAUDITEDPROFORMACOMBINEDCONDENSEDBALANCESHEETMarch31,1997Pooling(InMillions)HoldingBrooklynCompanyLILCOUnionProFormaProForma(Historical)(Eiisiorlcal)AdjsimsnlsCombinednof$782.5)..ASSETSPropertyUtilityplantElectric.Gas.Common.ConstructionworkinprogressNuclearfuelinprocessandinreactorLess-Accumulateddepreciationandamortization..Gasexplorationandproduction,atcostLess-AccumulateddepletionTotalPropertyRegulatoryAssetsBasefinancialcomponent(lessaccumulatedamortizatioRatemoderationcomponent.Shorehampost-settlementcostsRegulatorytaxassetPostretirementbenefitsotherthanpensionsOther~oTotalRegulatoryAssetsNonutilityPropertyandOtherInvestmcntsCurrentAssetsCashandcashequivalentsDeferredtaxassetAccountsreceivableandaccruedrevenues.Othercurrentassets.TotalCurrentAssets..DeferredChargesTotalAssets$3,900.21,171.2263.3108.915.5(1,759.1)3,700.03,256.3409.5996.31,767.2357.7456.07,343.018.964.593.3489.9162.5810.277.6$11,849.7$1,805.9(440.1)563.9(188.3)1,741.4156.952.5422.1474.6120.9$2,493.874.1(1)74.1(74.1)(1)$-$3,900.22,977.1263.3108.915.5(2,199.2)563.9(188.3)d,(did3,256.3409.5996.31,841.3357.7456.07,317.1175.8117.093.3489.9584.61,284.8124.4$14,343.5CAPITALIZATIONANDLIABILITIESCapitalizationCommon'Shareowners'quityLong-termdebtPreferredstockTotalCapitalizationRegulatoryLiabilitiesCurrentLiabilitiesAccountspayableandaccruedexpensesAccruedtaxes(includingfederalincometax)Othercurrentliabilities.TotalCurrentLiabilities.DeferredCreditsDeferredfederalincometaxOther.TotalDeferredCreditsOperatingReserves.CommitmentsandContingencies.MinorityInterestinSubsidiaryCompany.TotalCapitalizationandLiabilities$2,549.14,457.0702.17,708.2562.8230.251.1332.6613.92,420.5110.42,530.9433.9$11,849.7$1,004.1724.66.31,735.0165.868.674.9309.3309.757.7367.482.1$2,493.8(54.2)(2)(7)3,499.05,181.6(6.3)(7)702.1(605)93827562.860.8(2)(7)456.8119.7(0.3)(7)407.260.5983.72,730.2168.12,898.3433.982.1$14,343.5SeeaccompanyingNotestoUnauditedProFormaCombinedCondensedFinancialStatements.61 HOLDINGCOMPANYUNAUDITEDPROFORMACOMBINEDCONDENSEDSTATEMENTOFINCOMEFortheTwelveMonthsEndedMarch31,1997Pooling(InMillionsExceptPerShareAmounts)LILCOtHistoricat)BrooklynUnionProForma(Historical)AdjustmentsHoldingCompanyProFormaCombinedRevenuesElectricGas-UtilitysalesGasproductionandother.TotalRevenues.$2,465.0672.7$1,338.7134.13,137.71,472.8$-$2,465.02,011.4134.14,610.5OperatingExpensesOperations-fuelandpurchasedpower.Operations-otherMaintenanceDepreciation,depletionandamortization.BasefinancialcomponentamortizationRatemoderationcomponentamortization.Regulatoryliabilitycomponentamortization...OtherregulatoryamortizationOperatingtaxesFederalincometaxes.TotalOperatingExpenses.OperatingIncome.............954.8372.9117.0155.0101.0(3.0)(88.6)112.3469.6210.62,401.6736.1627.2367.260.292.9b148.745.61,341.8131.01,582.0740.1177.2247.9101.0(3.0)(88.6)867.1OtherIncomeIncomeBeforeInterestChargesInterestCharges.NetIncomePreferredstockdividendrequirements.EarningsforCommonStock21.545.7757.6176.7435.247.9322.4128.8(4)52.10.3(0.3)(7)$270.3$128.5$0.367.2934.3483.1451.252.1$399.1AverageCommonSharesOutstanding120.6"49.8(23.8)(3)146.6EarningsperCommonandEquivalentShares$2.24$2.58$.2.72SeeaccompanyingNotestoUnauditedProFormaCombinedCondensedFinancialStatements.62 0HOLDINGCOMPANYUNAUDITEDPROFORMACOMBINEDCONDENSEDSTATEMENTOFINCOMEIl'ortheTwelveMonthsEndedMarch31,1996Pooling(InMillions'I:xceptPerShareAmounts)c1BrooklynLILCOUnion(Histoclml)(Bistoical)ProFormaProFormaddjmtntentsCombinedRevenuesElectric.Gas-Utilitysales.Gasproductionandother.TotalRevenues$2,497.4650.83,148.2$1,272.297.8.1,370.0$-$2,497.41,923.097.84,518.2OperatingExpensesOperations-fuelandpurchasedpowerOperations-other.Maintenance.Depreciation,depletionandamortization.BasefinancialcomponentamortizationRatemoderationcomponentamortization....Regulatoryliabilitycomponentamortization..OtherregulatoryamortizationOperatingtaxestFederalincometaxesTotalOperatingExpensesOperatingIncomeOtherIncome.IncomeBeforeInterestChargesInterestChargesNetIncomePreferredstockdividendrequirements.EarningsforCommonStock.AverageCommonSharesOutstanding........EarningsperCommonandEquivalentShares.888.6391.1,124.4147.3101.0(49)(88.6)175.2455.9217.02,407.0741.2569.5349.854.7'72.7139.442.61,228.7141.345.55.7786.7147.0471.952.5314.8'94.552.5,0.3$262.3$94.2119.548.8$2.19$1.931,458.1740.9179.1220.0101.0(4.9)(88.6)175c2595.3259.63,635.7882.551.2933.7524.4409.3(0.3)(7)52.5$0.3$356.8(23.5)(3),144.8$-'2.46SeeaccompanyingNotestoUnauditedProFormaCombinedCondensedFinancialStatements.63 HOLDINGCOMPANYUNAUDITEDPROFORMACOMBINEDCONDENSEDSTATEMENTOFINCOMEFortheTwelveMonthsEnded,March31,1995Pooling(InMillionsExceptPerShareAmounts)BrooklynLILCOUnionProFormaProForma(Historical)(Historical)AdjustmentsCombinedRevenuesElectricGas-UtilitysalesGasproductionandother.TotalRevenues.$2,440.3546.1$1,203.454.82,986.41,258.2$2,440.31,749.554.84,244.6OperatingExpensesOperations-fuelandpurchasedpower....Operations-otherMaintenanceDepreciation,depletionandamortization.BasefinancialcomponentamortizationRatemoderationcomponentamortization.Regulatoryliabilitycomponentamortization...OtherregulatoryamortizationOperatingtaxesFederalincometaxes.TotalOperatingExpenses.OperatingIncome........OtherIncomeIncomeBeforeInterestChargesInterestCharges805.8388.0141.0134.6101.0160.5(88.6)8.0'08.9185.32,244.5741.946.17(%8.0485.5493.0324.352.170.9140.740.11,121.1137.13.7140.81,298.8712.3193.1205.51010160.5(88.6)8.0549.6225.43,365.6879.049.8928.852.7-538.2NctIncomePreferredstockdividendrequirements....302.552.988.10.3390.6(0.3)(7)52.9EarningsforCommonStock.....AverageCommonSharesOutstanding,117.447.6(23.1)(3)141.9$249.6$87.8$0.3$337,7EarningsperCommonandEquivalentShares$2.13$1.84$-$2.38SeeaccompanyingNotestoUnauditedProFormaCombinedCondensedFinancialStatements.64 NOTESTOUNAUDITEDPROFORMACOMBINEDCONDENSEDFINANCIALSTATEMENTS1.TheunauditedproformacombinedcondensedbalancesheetasofMarch31,1997reflectsthereclassificationof$74.1millionofBrooklynUnionregulatorytaxassetsfromdeferredchargestoregulatoryassets.Allotherfinancialstatementpresentationandaccountingpolicydifferencesareimmaterialandhavenotbeenadjus'tedintheunauditedproformacombinedcondensedfinancialstatements.2.Transactioncosts(includingfeesforfinancialadvisors,attorneys,accountants,consultants,taxes,filingsandprinting)arecurrentlyestimatedtobeapproximately$54.1million.BothBrooklynUnionandLILCOwillseekPSCapprovalforrecoveryofsuchtransactioncosts.3.TheunauditedproformacombinedcondensedfinancialstatementsreflecttheconversionofeachshareofLILCOCommonStockoutstandinginto0.803sharesofHoldingCompanyCommonStockandtheexchangeofeachshareofBrooklynUnionCommonStockoutstandingforoneshareofHoldingCompanyCommonStock,asprovidedintheBrooklynUnion/LILCOAgreement.Theunauditedproformacombinedcondensedfinancialstatementsarepresentedasifthecompanieswerecombinedduringallperiodsincludedtherein.4.TheBrooklynUnionearningsforthe12monthperiodendedMarch31,1997includenon-recurringincomeaggregatingapproximately$33.5million,netoftaxes,or$0.68pershare,relatingtogainsontheinitialpublicofferingofasubsidiary'sstockandthesaleofaninvestmentinaCanadianplant.Thisincomewaspartiallyoffsetbya$7.8millioncharge,netoftaxes,or$0.16,pershare,relatingtoreorganizationexpensesincurredbythesubsidiary.5.IntercompanytransactionsbetweenBrooklynUnionandLILCOduringtheperiodspresentedwerenottmaterialand,accordingly,noproformaadjustmentsweremadetoeliminatesuchtransactions.6.TheallocationbetweenBrooklynUnionandLILCOandtheircustomersoftheestimatedcostsavingsresultingfromtheCombination,netofthecostsincurredtoachievesuchsavings,willbesubjecttoregulatoryreviewandapproval.Noneoftheestimatedcostsavingsorthecoststoachievesuchsavings,havebeenreflectedintheunauditedproformacombinedcondensedfinancialstatements.7.InconnectionwiththeformationofKeySpan,BrooklynUnionwillredeemitsoutstandingpreferredstockatapremiumof2%pertermsoftheoriginalissuanceagreement.Asaresult,accountspayablehasbeenadjustedtoreflectapayableof$6.7millionincludingpremiumsof$0.1millionwhichhavebeenchargedtoCommonShareholders'quity.65 THECOMPANYFOLLOWINGTHECOMBINATIONANDTHELIPATRANSACTIONManagementoftheHoldingCompany.HoiriingCompanyBoardofDirectors.ThenumberofdirectorscomprisingthefullBoardofDirectorsoftheHoldingCompanyattheEffectiveTimewillbe15persons,sixofwhomwillbedesignatedbyBrooklynUnionpriortotheEffectiveTime,sixofwhomwillbedesignatedbyLILCOpriortotheEffectiveTimeandthreeofwhomwillbedesignatedbyacommitteeconsistingoftwocurrentBrooklynUniondirectorsandtwocurrentLILCOdirectors.IntheeventthattheCombinationisnotconsummatedandtheLIPATransactionisconsummated,theBoardofDirectorsoftheHoldingCompanywillconsistoftheDirectorsofLILCOservingimmediatelybeforetheLIPAClosing.SeniorExecutives.Dr.WilliamJ.CatacosinoswillbetheChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficero'ftheHoldingCompanycommencingattheEffectiveTime.AtthefirstanniversaryoftheEffectiveTime,Dr.CatacosinoswillceasetobetheChiefExecutiveOfficer,butwillcontinuetobeChairmanoftheBoardandChairmanoftheExecutiveCommitteeandwillbecomeaconsultanttotheHoldingCompany.IntheeventthattheCombinationisnotconsummatedandtheLIPATransactionisconsummated,theaboveprovisionswillnottakeeffectandDr.Catacosinoswillserveinthecapacityreferredtoabove.Mr.RobertB.CatellwillbethePresident'ndChiefOperatingOfficeroftheHoldingCompanycommencingupontheconsummationoftheCombinationandwillsucceedDr.CatacosinosasChiefExecutiveOfficeroftheHoldingCompanycommencingonthefirstanniversaryofsuchdate.Thearrangementstocausesuchelectionstotakeplaceatsuchfirstanniversarymaybealteredonlybyavote,followingtheEffectiveTime,oftwo-thirdsoftheentireBoardofDirectorsoftheHoldingCompany.CommonStockDividendsItisanticipatedthattheinitialannualizeddividendratepaidtoHolding.CompanyshareholdersaftercompletionoftheCombination,whetherornottheLIPATransactionisconsummated,willbe$1.78pershare,subjecttoapprovalanddeclaration,bytheHoldingCompanyBoardofDirectors.BrooklynUnion'sannualdividendrateiscurrently$1.46pershareandLILCO'sannualdividendrateiscurrently$1.78pershare.DeclarationandtimingofalldividendsdeclaredonHoldingCompanyCommonStockwillbeabusinessdecisiontobemadebytheHoldingCompanyBoardfromtimetotimebasedupontheresultsofoperationsandfinancialconditionoftheHoldingCompanyanditssubsidiaries,opportunities'availableforthereinvestmentofcashreceivedinconnectionwiththeLIPATransactionorotherwise,andsuchotherbusinessconsiderationsastheHoldingCompanyBoardconsidersrelevantinaccordancewithapplicablelaws.ForadescriptionofcertainrestrictionsontheHoldingCompany'sabilitytopaydividendsontheHoldingCompanyCommonStock,see"DescriptionofHoldingCompanyCapitalStock."DESCRIPTIONOFHOLDINGCOMPANYCAPITALSTOCKGeneralTheauthorizedcapitalstockoftheHoldingCompany,asoftheEffectiveTime,willconsistof450,000,000sharesofHoldingCompanyCommonStock,parvalue$.01pershare,and100,000,000sharesofpreferredstock,parvalue$.01pershare("HoldingCompanyPreferredStock").ThedescriptionofHoldingCompanycapitalstocksetforthhereindoesnotpurporttobecompleteandisqualifiedinitsentiretybyreferencetotheCertificateofIncorporationoftheHoldingCompany(the"HoldingCompanyCertificate")andtheBy-LawsoftheHoldingCompany(the"HoldingCompanyBy-Laws"),theformsofwhichareattachedheretoasAnnexesGandH,respectively,aswellasapplicablestatutoryorotherlaw.66 HoldingCompanyPreferredStockUndertheHoldingCompanyCertificate,subjecttoanyapprovaloftheSECwhichmayberequiredundertheHoldingCompanyAct,theBoardofDirectorsoftheHoldingCompanywillbeauthorizedtodividetheHoldingCompanyPreferredStockintoseries,toissuesharesofanysuchseriesand,'withinthelimitationssetforthintheHoldingCompanyCertificateorprescribedbylaw,tofixanddeterminethevotingrights,ifany,oftheholdersofsharesofsuchseriesandthedesignations,preferencesandrelative,participating,optionalandotherspecialrightsofeachseriesandthequalifications,limitationsandrestrictionsthereof(the"PreferredStockDesignation").TherearenopresentplanstoissueanyHoldingCompanyPreferredStockotherthanasdescribedherein.HoldingCompanyCommonStockTheholdersofHoldingCompanyCommonStockwillbeentitledtoreceivesuchdivideiidsastheBoardofDirectorsoftheHolding'ompanymayfromtimetotimedeclare,subjectto'anyrightsofholdersofHoldingCompanyPreferredStock,ifanyisissued.TheholdersofsharesofHoldingCompanyCommonStockwillbeentitledtoonevoteforeachsuchshareuponallproposalspresentedtotheshareholdersonwhichtheholdersofHoldingCompanyCommonStockareentitledtovote.ExceptasprovidedbylawandsubjecttoanyclassorseriesvotingrightsofholdersofanyHoldingCompanySeriesAAPreferredStock,theholdersofHoldingCompanyCommonStockwillhavetheexclusiverighttovotefortheelectionofDirectorsandforallotherpurposes,andholdersofHoldingCompanyPreferredStockwillnotbeentitledtoreceivenoticeofanymeetingofshareholdersatwhichsuchholdersofHoldingCompanyPreferredStockarenotentitledtovote.Theholdersofsharesofaclassorseriesshallbeentitledtovoteandtovoteasaclassupontheauthorizationofanamendmentand,inadditiontotheauthorizationoftheamendmentbyvoteoftheholdersofamajorityofalloutstandingsharesentitledtovotethereon,theamendmentshallbeauthorizedbyvoteoftheholdersofamajorityofalloutstandingsharesoftheclassorserieswhenaproposedamendmentwouldchangetheirshare'stunderBCLSection801(b)(11),thatis,changeanyauthorizedshares,whetherissuedorunissued,intoadifferentnumberofsharesofthesameclass.TheholdersofHoldingCompanyCommonStockwillnotbeentitledtocumulatevotesfortheelectionofDirectors.Intheeventofanyliquidation,dissolutionorwindingupoftheHoldingCompany,theholdersofHoldingCompanyCommonStock,subjecttoanyrightsoftheholdersofanyHoldingCompanyPreferredStock,willbeentitledtoreceivetheremainder,ifany,oftheassetsoftheHoldingCompanyafterthedischargeofitsliabilities.HoldersofHoldingCompanyCommonStockwillnotbeentitledtopreemptiverightstosubscribefororpurchaseanypartofanyneworadditionalissueofstockorsecuritiesconvertibleintostock.TheHoldingCompanyCommonStockwillnotcontainanyredemptionprovisionsorconversionrights.I0CertainAnti-TakeoverProvisionsTheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawswillcontainvariousotherprovisionsintendedto(i)promotestabilityoftheHoldingCompany'sshareholderbaseand(ii)rendermoredifficultcertainunsolicitedorhostileattemptstotakeovertheHoldingCompanywhichcoulddisrupttheHoldingCompany,diverttheattentionof,theHoldingCompany'sdirectors,officersandemployeesandadverselyaffecttheindependenceandintegrityoftheHoldingCompany'sbusiness.AsummaryoftheseprovisionsoftheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsissetforthbelow.RemovalofDirectors.TheHoldingCompanyCertificateprovidesthatexceptasotherwiseprovidedfororfixedbyorpursuanttoaCertificateofAmendmentsettingforththerightsoftheholdersofanyclassorseriesofHoldingCompanyPreferredStock,newlycreateddirectorshipsresultingfromanyincreaseinthenumberofdirectorsandanyvacanciesontheBoardofDirectorsoftheHoldingCompanyresultingfromdeath,resignation,disqualification,removalorothercausewillbefilledbytheaffirmativevoteofamajorityoftheremainingdirectorstheninoffice,eventhoughlessthanaquorumofthe,BoardofDirectorsoftheHoldingCompany,andnotbytheshareholders.SubjecttotherightsofholdersofHoldingCompanyPreferredStock,anydirecto'rmayberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleastamajorityofthevoting67 powerofalltheoutstandingcapitalstockoftheHoldingCompanyentitledtovotegenerallyintheelectionofdirectors(the"VotingPower"),votingtogetherasasingleclass.TheNYBCLprovidesthatunlessthecertificateofincorporationorby-lawsofacorporationsoprovide,adirectormayberemovedonlyforcausebyvoteoftheshareholders.NoneoftheRestatedCertificateofIncorporationofBrooklynUnion,asamended(the"BrooklynUnionCertificate,")theBy-LawsofBrooklynUnion(the"BrooklynUnionBy-Laws,")theLILCOAmendedandRestatedCertificateofIncorporation(the"LILCOCertificate")ortheBy-LawsofLILCO,asamended(the"LILCOBy-Laws")containsprovisionsforremovalofadirector.SpecialShareholders'eetingsaudRigirtIoActByIVrittenConsent.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethataspecialmeetingofshareholdersmaybecalledonlybyaresolutionadoptedbyamajorityofthe.entireBoardofDirectorsoftheHoldingCompany.Shareholdersarenotpermittedtocall,ortorequirethattheBoardofDirectorscall,aspecialmeetingofshareholders.Moreover,thebusinesspermittedtobeconductedatanyspecialmeetingofshareholdersislimitedtothebusinessbroughtbeforethemeetingpursuanttothenoticeofthemeetinggivenbytheHoldingCompany.TheHoldingCompanyBy-LawspermitaspecialmeetingofshareholderstobecalledatanytimeforanypurposebyorderoftheBoardofDirectorsoftheHoldingCompany.Inaddition,theHoldingCompanyCertificateprovidesthatanyactiontakenbytheshareholdersoftheHoldingCompanymustbeeffectedatanannualorspecialmeetingofshareholdersandmaynotbetakenbywrittenconsentinlieuofameeting.The'rovisionsoftheHolding'ompanyCertificateandtheHoldingCompanyBy-Lawsprohibitingshareholderactionbywrittenconsentmayhavetheeffectofdelayingconsiderationofashareholderproposaluntilthenextannualmeeting.TheseprovisionswouldalsopreventtheholdersofamajorityoftheVotingPowerfromunilaterallyusingthewrittenconsentproc'eduretotakeshareholderaction.Moreover,ashareholdercouldnotforceshareholderconsiderationofaproposalovertheoppositionoftheBoardofDirectorsoftheHoldingCompanybycallingaspecialmeetingofshareholderspriortothetimetheBoardbelievessuchconsiderationtobeappropriate.ProceduresforShareholderNomiirnlionsrindProposals.'heHoldingCompanyBy-LawsestablishanadvancenoticeprocedureforshareholderstonominatecandidatesforelectionasdirectorsortobringotherbusinessbeforemeetingsofshareholdersoftheHoldingCompany(the"ShareholderNoticeProcedure").OnlythoseshareholdernomineeswhoarenominatedinaccordancewiththeShareholderNoticeProcedurewillbeeligibleforelectionasdirectorsoftheHoldingCompany.UndertheShareholderNoticeProcedure,noticeofshareholdernominationstobemadeatanannualmeeting(orofanyotherbusinessthatmayproperlybebroughtbeforesuchmeeting)mustbereceivedbytheHoldingCompanynotlessthan60daysnormorethan90dayspriortothefirstanniversaryofthepreviousyear'sannualmeeting(or,ifthedateoftheannualmeetingismorethan30daysbeforeormorethan60daysaftersuchanniversarydate,notearlierthanthe90thdaypriortosuchmeetingandnotlaterthanthelaterof(i)the60thdaypriortosuchmeetingor(ii)the10thdayafterpublicannouncementofthedateofsuchmeetingisfirstmade).Notwithstandingthe'foregoing,intheeventthatthenumberofdirectorstobeelectedisincreasedandthereisnopublicannouncementnamingallofthenomineesfordirectororspecifyingthesizeoftheincreasedBoardofDiiectorsmadebytheHoldingCompanyatleast70dayspriortothefirstanniversaryoftheprecedingyear'sannualmeeting,ashareholder'snoticewillbetimely,butonlywithrespecttonomineesforanynewpositionscreatedbysuchincrease,ifitisreceivedbytheHoldingCompanynotlaterthanthe10thdayaftersuchpublicannouncementisfirstmadebytheHoldingCompany.TheHoldingCompanyBy-Lawsprovidethatonlysuchbusinessmaybeconductedataspecialmeetingasisspecifiedinthenoticeofmeeting.NominhtionsforelectiontotheHoldingCompanyBoardmaybemadeataspecialmeetingatwhichdirectorsaretobeelectedonlybyorattheHoldingCompanyBoardofDirectors'irectionorbyashareholderwhohasgiventimelynoticeofnomination.UndertheShareholderNoticeProcedure,suchnoticemustbereceivedbytheHoldingCompanynotearlierthanthe90thdaybeforesuch68 meetingandnotlaterthanthelaterof(i)the60thdaypriortosuchmeetingor(ii)the10thdayafterpublicannouncementbytheHoldingCompanyofthedateofsuchmeeting.Shareholderswillnotbeabletobringotherbusinessbeforespecialmeetingsofshareholders.TheShareholderNoticeProcedureprovidesthatatanannualmeetingonlysuchbusinessmaybeconductedashasbeenbroughtbeforethemeetingatthedirectionoftheHoldingCompanyBoardofDirectorsorbyashareholderwhohasgiventimelywrittennotice(assetforthabove)totheSecretaryoftheHoldingCompanyofsuchshareholder'sintentiontobringsuchbusinessbeforesuchmeeting.'UndertheShareholderNoticeProcedure,ashareholder'snoticetotheHoldingCompanyproposingtonominateanindividualforelectionasadirectormustcontaincertaininformation,including,withoutlimitation,theidentityandaddressofthenominatingshareholder,theclassandnumberofsharesofstockoftheHoldingCompanyownedbysuchshareholder,andallinformationregardingtheproposednomineethatwouldberequiredtobeincludedinaproxystatementsolicitingproxiesfortheproposednominee.UndertheSliareholderNoticeProcedure,ashareholder'snoticerelatingtotheconductofbusinessotherthanthenominationofdirectorsmustcontaincertaininformationaboutsuchbusinessandabouttheproposingshareholder,includingwithoutlimitation,abriefdescriptionofthebusinesstheshareholderproposestobringbeforethemeeting,thereasonsforconductingsuchbusinessatsuchmeeting,thenameandaddressofsuchshareholder,theclassandnumberofsharesofstockoftheHoldingCompanybeneficiallyownedbysuchshareholder,andanymaterialinterestofsuchshareholderinthebusinesssoproposed.IftheChairmanorotherofficerpresidingatameetingdeterminesthatanindividualwasnotnominated,orotherbusinesswasnotbroughtbeforethemeeting,inaccordancewiththeShareholderNoticeProcedure,such-individualwillnotbeeligibleforelectionasadirector,orsuchbusinesswillnotbeconductedatsuchmeeting,asthecasemaybe.Byrequiringadvancenoticeofnominationsbyshareholders,theShareholderNoticeProcedurewillaffordtheHoldingCompanyBoardofDirecto'rsanopportunitytoconsiderthequalificationsoftheproposednomineesand~totheextentdeemednecessaryordesirablebytheHoldingCompany"Board,toinformshareholdersaboutsuchqualifications.Byrequiringadvancenoticeofotherproposedbusiness,theShareholderNoticeProcedurewillprovideamoreorderlyprocedur'eforconductingannualmeetingsofshareholdersand,totheextentdeemednecessaryordesirablebytheHoldingCompanyBoard,willprovidetheHoldingCompanyBoardwithanopportunitytoinformshareholders,priortosuchmeetings,ofanybusinessproposedtobeconductedatsuchmeetings,togetherwiththeHoldingCompanyBoard'spositionregardingactiontobetakenwithrespecttosuchbusiness,sothatshareholderscanbetterdecidewhethertoattendsuchameetingortograntaproxyregardingthedispositionofanysuchbusiness.hAlthoughtheHoldingCompanyBy-LawsdonotgivetheHoldingCompanyBoardanypowertoapproveordisapproveshareholdernominationgfortheelectionofdirectorsandonlylimitedpowertoapproveordisapproveshareholderproposalsforaction,theymayhavetheeffectofprecludingacontestfortheelectionofdirectorsortheconsiderationofshareholderproposalsiftheproperproceduresarenot.followed,andofdiscouragingordeterringathirdpartyfromconductingasolicitationofproxiestoelectitsown-slateofdirectorsortoapproveitsownproposal,withoutregardtowhetherconsiderationofsuchnomineesorproposalsmightbeharmfulorbeneficialtotheHoldingCompanyanditsshareholders.AmendmentoftireHoldingCompanyCertificateandtheHoldingCompanyBy-Laws.TheHoldingCompanyCertificateprovidesthattheaffirmativevoteofatleast80percentoftheVotingPower,votingtogetherasasingleclass,wouldberequiredto(i)amendorrepealtheprovisionsoftheHoldingCompanyCertificatewithrespectto(A)theelectionofdirectorsand(B)therighttocallaspecialshareholders'eetingand(C)'therighttoactbywrittenconsent;(ii)adoptanyprovisioninconsistentwithsuchprovisions;and(iii)amendorrepealtheprovisionsoftheHoldingCompanyCertificatewithrespecttoamendmentstotheHoldingCompanyCertificateortheHoldingCompanyBy-Laws.69 THEAME<NDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEANDMERGERTltefollowingisasummaryofthematerialtermsoftheBrooklynUnion/LILCOAgreement,whichisattachedasAnnexAandisincorporatedhereinbyreference.SuchsununaryisqualifiedinitsentiretybyreferencetotheBrooklynUnion/LILCOAgreentent.IntheeventthattheKeySpanShareExchangeliasbeetrconsmnmated,thenKeySpanwillbesubstitutedforBroollynUnionintlieCombinationandtheBrooklynUnion/LILCOAgreement.TheCombinationTheBrooklynUnion/LILCOAgreementprovidesthat,followingitsadoptionbytheshareholdersofboth,LILCOandBrooklynUnionandthesatisfactionorwaiveroftheotherconditionstotheCombination,includingobtainingtherequisiteregulatoryapprovals,theoutstandingsharesofLILCOCommonStockwillbeex'changedfornewlyissuedsharesofHoldingCompanyCommonStockintheShareExchangeandtheoutstandingsharesofBrooklynUnionCommonStockwillbeconver'tedintotherighttoreceivenewlyissuedsharesofHoldingCompanyCommonStockintheMerger.EffectsoftheCombinationExceptasprovidedbelow,upontheconsummationoftheShareExchange,andwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnionortheHoldingCompany:i.EachissuedandoutstandingshareofLILCOCommonStock,otherthansharesheldbydissentingshareholders("LILCODissentingShares"),willbeexchangedfor0.803sharesofHoldingCompanyCommonStock;providedthatiftheLIPAAgreementhasnotbeenterminatedbutthetransactionscontemplated,therebywillnotbeconsummatedcontemporaneouslywiththeCombination,theneachissuedandoutstandingshareofLILCOCommonStock,otherthantheLILCO,DissentingShares,willbeexchangedfor0.803sharesofHoldingCompanyCommonStockand,ifthetransactionscontemplatedbytheLIPA.AgreementareconsummatedwithintwoyearsoftheEffectiveJime,thentheHoldingCompanywillissuetopersonswhowereholdersofrecordofLILCOCommonStockattheEffectiveTimeanadditional0.077sharesofHoldingCompanyCommonStock(the"ContingentIssuance")inrespectofeachshareofLILCOCommonStock,otherthanLILCODissentingShares,thathadbeenheldbythemofrecordattheEffectiveTime.UpontheShareExchange,theHoldingCompanywillbecometheownerofeachshareofLILCOCommonStocksoexchangedandeachsuchshareofLILCOCommonStockwillbedeemedtohavebeenexchangedforthatfractionofashareofHoldingCompanyCommonStockspecifiedabove.ii.EachissuedandoutstandingshareofthepreferredstockofLILCOwillbeunchangedasaresultoftheShareExchangeandwillremainoutstandingthereafter.UpontheconsummationoftheMerger,andwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnionortheHoldingCompany,eachissuedandoutstandingsharebfBrooklynUnionCommonStock,otherthansharesheldby'issentingshareholders("BrooklynUnionDissentingShares"),willbeconvertedintotherighttoreceiveoneshareofHoldingCompanyCommonStockpursuanttotheMerger.UponsuchMerger,BrooklynUnionwillbecomeawhollyownedsubsidiaryoftheHoldingCompanyandeachsuchshareofBrooklynUnionCommonStockwillbedeemedtohavebeenexchangedforoneshareofHoldingCompanyCommonStock.~'ftlieCombinationandtheJ.IPATransactionareconsummatedcontemporaneouslyoriftheLIPATransactionisconsummatedbeforetheCombination,theninsteadofconsummatingtheShareExchange,thetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementandtheLIPAAgreementwillbeconsummatedasfollows:(i)LILCOwilltransfertheTransferredAssets(asdefinedintheLIPAAgreement)tosuchsubsidiariesoftheHoldingCompanyasBrooklynUnionandLILCOwilldirectinexchangefortheDesignated70 Number(asdefined)of,sharesofHoldingCompanyCommonStockandupto$75millionfaceamountofHoldingCompanyPreferredStock.,The"DesignatedNumber"willbethenumberofsharesofHoldingCompanyCommonStockrepresentingthenetfairmarketvalueoftheTransferredAssets,aswillbedeterminedingoodfaithbyBrooklynUnionandLILCO,lessthefaceamountofsuchHoldingCompanyPreferredStock;(ii)themergerofLIPASubwithandintoLILCOandthetr'ansactionsconteniplatedbytheLIPAAgreementwillbeconsummated,andtheCashPurchasePrice(asdefined)willbepaidtotheExchangeAgentasagentfortheholdersofLILCOCommonStocktosubscribeforandpurchaseanumberofsharesofHoldingCompanyCommonStock,whichnumberofshareswhenaddedtotheDesignatedNumbershallrepresentthenumberofsharesofLILCOCommonStockissued'andoutstandingimmediatelypriortotheLILCOEffectiveTime,otherthanLILCODissentingShares,multipliedbytheLIPARatio(i.e.,0.880);and(iii);promptlythereafter,theMergershallbeconsummated.,Il',BrooklynUnion'DissentingSharesandLILCODissentingShareswillnotbeconvertedintotherighttoreceiveHolding'CompanyCommonStockpursuanttotheBrooklynUnion/LILCOAgreement,butwillbeconvertedintosuch'considerationasmaybeduewithrespecttosuchsharespursuanttotheapplicableprovisionsoftheNYBCL.AssoonaspracticableaftertheconsummationoftheCombination,anexchangeagentmutuallyagreeabletoLILCOandBrooklynUnion(the"ExchangeAgent")willmailtoeachholderofrecordofacertificate(a"Certificate")whichimmediatelypriortheretorepresentedoutstandingsharesofLILCOCommonStockorwhichimmediatelypriortheretorepresented'outstandingsharesofBrooklynUnionCommonStock(the"ExchangedShares")thatwerecancelledorexchangedforsharesofHoldingCompanyCommonStock,aletteroftransmittalandinstructionsforuseineffectingthesurrenderofsuchCertificateinexchangeforcertificatesrepresentingsharesofHoldingCompanyCommonStock."UponsurrenderofaCertificatetotheExchangeAgent,togetherwithadulyexecutedletteroftransmittalandsuchotherdocuments,ifany,astheExchangeAgentshallrequire,theholderofsuchCertificatewillbeentitledtoreceiveacertificaterepresentingthat,numberofwholesharesofHoldingCompanyCommonStockandanycashinlieuof'afractionalshareofHoldingCompanyCommonStockwhichsuchholderhastherighttoreceivepursuanttotheBrooklynUnion/LILCOAgreement.NofractionalsharesofHoldingCompanyCommonStockwillbeissuedinconnectionwiththeCombinationortheLIPATransaction.Foreachfractionalsharethatwouldotherwisebeissued,theExchangeAgentwillpayanamountequaltoaprorataportionoftheproceedsofthesalebytheExchangeAgentofsharesofHoldingCompanyCommonStockrepresentingtheaggregateofallsuchfractionalshares,suchsaletobeexecutedbytheExchangeAgentaspromptlyaspossibleaftertheEffectiveTime.IfatransferofownershipofExchangedSharesisnotregisteredinthetransferrecordsofLILCOorBrooklynUnion,asthecasemaybe,andifthetransfereepresentstotheExchangeAgent:(i)theCertificaterepresentingsuchExchangedShares,(ii)alldocumentsrequiredtoevidenceandeffectsuchtransfer,and(iii)e'videncesatisfactorytotheExchangeAgentthatanyapplicablestocktransfertaxeshavebeenpaid,thenacertificaterepresentingthepropernumberofsharesofHoldingCompanyCommonStockmaybeissuedtosuchtransferee.I'ntilsurrendered,eachCertificatewillbedeemedatanytimeaftertheEffectiveTimetorepresentonlytherighttoreceiveuponsuchsurrenderthecertificaterepresentingtheapplicablenumberofsharesofHoldingCompanyCommonStockandcashinlieuofanyfractionalshareofHoldingCompanyCommonStock.aNodividendsorotherdistributionsdeclaredormadeaftertheEffectiveTimewithrespecttosharesof.HoldingCompanyCommonStockwitharecord,dateafterthe,EffectiveTime,willbepaidtotheholderofanyunsurrenderedCertificate,andnocashpaymentinlieuoffractionalshareswillbepaidtoanysuchholderuntil71 suchCertificateissurrendered.Aftersuchsurrender,subjecttoapplicablelaw,therewillbepaidtosuchholder,withoutinterest,theunpaiddividendsanddistributions,andanycashpaymentinlieuofafractionalshare,towhichsuchholderisentitled.IfthetransactionscontemplatedbytheLIPAAgreementareconsummatedwithintwoyearsoftheEffectiveTime,thentheExchangeAgentwillmailtoeachholderofrecordofCertificateswhichimmediatelyprior.totheEffectiveTimerepresentedoutstandingsharesofLILCOCommonStockthatwereexchangedforHoldingCompanyCommonStockincompliancewiththeissuanceproceduresdescribedabovecertificatesforthenumberofwholesharesofHoldingCompanyCommonStockwhichsuchholderhastherighttoreceivepursuanttotheContingentIssuance.NodividendsorotherdistributionsdeclaredormadeaftertheEffectiveTimewithrespecttosharesofHoldingCompanyCommonStockwitharecorddateaftertheEffectiveTimeandpriortotheconsummationofthetransactionscontemplatedbytheLIPAAgreementwillbepaidinrespectofsharestobeissuedpursuanttotheContingentIssuance.TheproceduresdescribedabovewithrespecttofractionalshareswillbeemployedwithrespecttosharestobeissuedpursuanttotheContingentIssuance.Fromandaftertheconsummationof'theCombination,thecommonstock,transferbooksofLILCOandBrooklynUnionwillbeclosedandnotransferofanyLILCOCommonStockor,BrooklynUnionCommonStockwillthereafterbemade.If,aftertheconsummationoftheCombination,CertificatesarepresentedtotheHoldingCompany,theywillbecancelledandexchangedforcertificatesrepresentingtheappropriatenumberofsharesofHoldingCompanyCommonStock.HOLDERSOFLILCOCOMMONSTOCKANDBROOKLYNUNIONCOMMONSTOCKSHOULDNOTSENDINTHEIRSTOCKCERTIFICATESUNTILTHEYRECEIVEALETTEROFTRANSMITTAL.RepresentationsandWarrantiesTheBrooklynUnion/LILCOAgreementcontainscustomaryrepresentationsandwarrantiesbyeachofBrooklynUnionandLILCOrelatingto,amongotherthings(a)theirrespectiveorganizations,theorganizationoftheirrespectivesubsidiariesandsimilarcorporatematters;(b)theirrespectivecapitalstructures;(c)authorization,execution,delivery,performanceandenforceabilityoftheBrooklynUnion/LILCOAgreementandrelatedmatters;(d)requiredgovernmentalandregulatoryapprovals;,(e)theircompliancewithapplicablelaws-andagreements;(I)reportsandfinancialstatementsfiledwiththeSEC,FERCandNRCandtheaccuracyofinformationcontainedtherein;(g)theabsenceofanymaterialadverseeffectontheirbusiness,assets,financialcondition,resultsofoperationsorprospects;(h)theabsenceofadversematerialsuits,claimsorproceedings,andotherlitigationissues;(i)theaccuracyofinformationsuppliedbyeachofLILCOandBrooklynUnionforuseinthisJointProxyStatement/Prospectus;(j)taxmatters;(k)retirementandotheremployeebenefitplansandmattersrelatingtotheEmployeeRetiiementIncomeSecurityActof1974,asamended("ERISA");(1)labormatters;(m)compliancewithallapplicableenvironmentallaws,possessionofallmaterialenvironmental,health,andsafetypermitsandotherenvironmentalissues;(n)theregulationofBrooklynUnionandLILCOandtheirsubsidiariesaspublicutilities;(o)theshareholdervoterequiredfortheadoptionoftheBrooklynUnion/LILCOAgreement(assetforthinthisJointProxyStatement/Prospectus)beingtheonlyvoterequiredtoadopttheBrooklynUnion/LILCOAgreementandthetransactionscontemplatedthereby;(p)that,exceptascoritemplatedintheBrooklynUnion/LILCOAgreementortheLIPAAgreement,neitherBrooklynUnionnorLILCOoranyoftheirrespectiveaffiliateshavetakenoragreedtotakeanyactionthatwouldpreventtheHoldingCompanyfromaccountingforthetransactionstobeeffectedpursuanttotheBrooklynUnion/LILCOAgreementasapoolingofinterests;(q}theinapplicabilityofcertainprovisionsofNewYorklawrelatingtobusinesscombinations;(r)thedeliveryoffairnessopinionsbyMerrillLynch,inthecaseofBrooklynUnion,andDillonRead,inthecaseofLILCO;(s)themaintenanceofvalidandenforceableinsurancepolicieswithfinanciallyresponsibleinsurers;(t)theabsenceofownershipofeachother'sstock;and(u)theabsenceofanymaterialimpairmenttotheHoldingCompany'sabilitytorealizethebusinesssynergiesdescribedinthejointpressreleaseissuedinconnectionwiththeannouncementoftheBrooklynUnion/LILCOAgreement.72 CertainCovenantsPursuanttotheBiooklynUnion/LILCOAgreement,eachofLILCOandBrooklynUnionhasagreedthat,duringtheperiodfromthedateoftheOriginalAgreementuntiltheconsummationoftheCombination,exceptaspermittedbytheBrooklynUnion/LILCOAgreement,theStockOptionAgreements,theKeySpanExchangeAgreement,theLIPAAgreementandtheHedgeArrangements(asdefinedbelow),orasotherwiseconsentedtoinwritingbytheotherpartiesandsubjecttocertainexceptionsspecifiedintheBrooklynUnion/LILCOAgreement,eachwill(andeachofitssubsidiarieswill),amongotherthings:(a)carryonitsbusinessintheordinarycourseconsistentwithpriorpractice;(b)notdeclareorpayanydividendsonormakeotherdistributionsinrespectofanyofitscapitalstockotherthan(i)tosuchpartyoritswholly-ownedsubsidiaries,(ii)dividendsrequiredtobepaidonanypreferredstock,and(iii)regularquarterlydividendstobepaidonLILCOCommonStockandBrooklynUnionCommonStocknottoexceed103%ofthedividendsforthepriorfiscalyear;(c)noteffectcertainotherchangesinitscapitalizationotherthanredeemingoutstandingLILCOpreferredstockasrequiredbytheirtermsandBrooklynUnionpreferredstock,inaccordancewiththeirterms;(d)notissueorencumberanycapitalstock,rights,warrants,optionsorconvertibleorsimilarsecurities;(e)inthecaseofLILCOorBrooklynUnion,notamenditscertificateofincorporation,by-lawsorotherorganizational,documents;(f)notacquireasubstantialinterestinanyotherentity;(g)notmakeanycapitalexpendituresinexcessof110%oftheamountbudgetedorscheduledbysuchpartyforcapitalexpenditures;(h)notsell,lease,encumberorotherwisedisposeofmaterialassets,otherthanintheordinarycourseofbusiness;(i)notincurindebtedness(orguaranteesthereof),otherthaninconnectionwiththerefundingofexistingindebtedness;(j)notenterinto,adoptoramendorincreasetheamountoracceleratethepaymentorvestingofanybenefitoramountpayableunder,anyemployeebenefitplanorotheragreement,commitment,arrangement,planorpolicy,exceptfor"normalincreasesintheordinarycourseofbusinessconsistentwithpastpracticethat,intheaggregate,donotresultinamaterialincreaseinbenefits;(k)notenterintooramendanyspecialarrangementwithrespecttotheterminationofemploymentorothersimilarcontract,agreementorarrangementwithanydirector,officeroremployeeotherthanintheordinarycourseofbusinessconsistentwithpastpractice;(1)notcommenceconstructionoforobligateitselftopurchaseanyadditionalelectricgenerating,transmissionordeliverycapacity,exceptasbudgeted;(m)nottakeanyactionwhichwouldpreventtheHoldingCompanyfromaccountingforthetransactionstobeeffectedpursuanttotheBrooklynUnion/LILCOAgreementasapoolingofinterests;(n)nottakeanyactionwllichwouldadverselyaffectthestatusoftheMergerasatax-freetransactiontoBrooklynUnioncommonshareholdersand,unlesstheLIPAAgreementhasbeenterminated,theShareExchangeasataxabletransactiontotheLILCOcommonshareholders,ortocausetheformationoftheHoldingCompanytobeatransactiontowhichSection351oftheCodedoesnotapply;(o)notifytheotherpartiesofanychangesinitsratesorcharges(otherthanpass-thtoughfuelandgasratesorcharges)orstandardsofserviceoraccounting;andnotmakeanyfilingtochangeitsratesonfilewiththePSCthatwouldhaveamaterialadverseeffectonthebenefitsassociatedwiththetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement;and(p)nottakeanyactionthatislikelytojeopardizethequalificationofLILCO'sorBrooklynUnion'soutstandingrevenuebondsastax-exemptindustrialdevelopmentbonds.73 IndemnificationTheBrooklynUnion/LILCOAgreement'providesthat,totheextent,ifany,notprovidedbyanexistingrightofindemnificationorotheragreementorpolicy,from.andaftertheconsummationoftheCombination,theHoldingCompanyshall,tothefullestextentpermittedbyapplicablelaw,indemnify,defendandholdharmlesseachpersonwhowasat,orwhohadbeenatanytimepriortoDecember29,1996,orwhobecomespriortotheEffectiveTime,anofficer,directororemployeeofanyofthepartiestheretooranyoftheirrespectivesubsidiariesagainstalllosses,expenses(includingreasonableattorney'sfeesandexpenses),claims,damagesorliabilitiesor,subjecttotheHoldingCompanyprovidingitswrittenconsentforanysettlementwhichshallnotbeunreasonablywithheld,amountspaidinsettlement,arisingoutofactionsoromissionsoccurringatorpriortotheconsummationoftheCombination(andwhetherassertedorclaimedpriortoatoraftertheconsummationoftheCombination)thatare,inwhole.orinpart,basedonorarisingoutofthefactthatsuchpeisonisorwasadirector,officeroremployeeofsuchparty,andallsuchindemnifiedliabilitiestotheextenttheyarebasedonorariseoutoforpertaintothetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement.Inaddition,theBrooklynUnion/LILCOAgreementrequiresthatforaperiodofsixyearsaftertheconsummationoftheCombination,theHoldingCompany(anditssuccessorsandassigns)shallmaintainineffectpoliciesofdirectors'ndofficers'iabilityinsuranceasmaintainedbyBrooklynUnionandLILCOforthebenefitofthosepersons(andtheirheirsorrepresentatives)whoarecoveredbysuchpoliciesatDecember29,1996,oratanytimesubsequenttheretoandpriortotheEffectiveTime,ontermsnolessfavorablethanthetermsofthethenexistinginsurancecoverage.Also,theBrooklynUnion/LILCOAgreementprovidesthattothefullestextentpermittedbylaw,fromandaftertheconsummationoftheCombination,allrightstoindemnificationexistinginfavoroftheemployees,agents,directorsandofficersofBrooklynUnion,LILCOandtheirrespectivesubsidiarieswithrespecttotheiractivitiesassuchpriortotheconsummationoftheCombination,asprovidedintheirrespectivecertificatesofincorporationandby-lawsineffectonDecember29,1996,orotherwiseineffectonDecember29,1996,willsurvivetheCombinationandwillcontinueinfullforceandeffectforaperiodofnotlessthansixyearsfro'mtheconsummationoftheCombination.EmploymentandWorkforceMattersEmployeeAgreements.TheBrooklynUnion/LILCOAgreementprovidesthattheHoldingCompanyanditssubsidiariesmusthonorallcontracts,agreements,collectivebargainingagreementsandcommitmentsofthepartiesmadebeforeDecember29,1996whichapplytoanycurrentorformerdirectororemployeeofthepartiesthereto.HoldingCompanyBoardofDirectors.ThenumberofdirectorscomprisingthefullBoardofDirectorsoftheHoldingCompanyupontheconsummationoftheCombinationwillbe15persons,sixofwhomwillbedesignatedbyBrooklynUnionpriortotheconsummationoftheCombination,sixofwhomwillbedesignatedbyLILCOpriortotheconsummationoftheCombinationandthreeofwhomwillbedesignatedbyacommitteeconsistingoftwocurrentBrooklynUniondirectorsandtwocurrentLILCOdirectors.'eniorExecntives.Dr.CatacosinoswillbetheChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheHoldingCompanycommencingattheXffectiveTime.AtthefirstanniversaryoftheconsummationoftheCombination,Dr.Catacosinoswillceasetobe,theChiefExecutiveOfficer,butwillcontinuetobeChairmanoftheBoardandChairmanoftheExecutiveCommitteeandwillbecomeaconsultanttotheHoldingCompany.Mr.CatellwillbethePresidentandChiefOperatingOfficeroftheHoldingCompanycommenc'ingupontheconsummationoftheCombinationandwillsucceedDr.CatacosinosasChiefExecutiveOfficeroftheHoldingCompanycommencingonsuchfirstanniversary.Thearrangementstocausesuchelectionstotakeplace~atsuchfirstanniversarymaybealteredonlybyavote,followingtheconsummationoftheCombination,oftwo-~thirdsoftheentire.BoardofDirectorsoftheHoldingCompany.74 IntheeventthattheMergerisnotconsummated,theprovisiondescribedintheprecedingparagraphwillnottakeeffectandDr.CatacosinoswillcontinuetoserveasChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheHoldingCompany.TheHoldingCompanywillenterinto'employmentagreementswitheachofDr,CatacosinosandMr.CatelleffectiveupontheconsummationoftheCombinationprovidingforeachofthemtoassumethespecifiedpositions.Dr.CatacosinoswillserveasaconsultanttotheHoldingCompanyforafive-yearperiodcommencingafterheceasesbeingChiefExecutiveOfficer,andMr.CatellwillserveasChiefExecutiveOfficerforafour-yearperiodcommencingonthefirstanniversaryoftheconsummationoftheCombination.Eachofthemistoreceivecompensation(includingcertainincentivecompensationrelatedtoachievingthesynergiescontemplated.toberealizedfromtheCombination)ontermsmutuallyagreedtoandinanyeventinanamountnotlessthanwhateachreceivedasofDecember29,1996aswellasreasonableincreases,andotherwisecontainingtermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.StockandBenefitPlansEachofthebenefitplans'fBrooklynUnionandLILCOineffectasofDecember29,1996willbecontinuedfortheemployeesorformeremployeesofBrooklynUnionandLILCOandanyoftheirsubsidiarieswhoarecoveredbysuchplansim'mediatelypriortothedateoftheclosingoftheCombination(ihe"ClosingDate"),untiltheHoldingCompanyotherwisedeterminesafter'theconsummationoftheCombination(subjecttoanyreservedrightcontainedinany'suchbenefitplan)toamend,modify,suspend,revokeorterminatesuchplan.Totheextentthatnoduplicationofbenefitorfundingresults,eachparticipantinanysuchbenefitplanwillreceivecreditforpurposesofeligibilitytoparticipate,vesting,benefitaccrualandeligibilitytoreceivebenefitsunderanybenefitplanoftheHoldingCompanyoranyofitssubsidiariesoraffiliatesforservicecreditedforthetcorresponding"purposeundersuchbenefitplans.UpontheconsummationoftheMerger,LILCOandBrooklynUnionwilltakeallactionrequiredtoterminatetheirrespectiveemployeestockoption,stockpurchaseandothersimilarstockplansand:(i)eachshareofBrooklynUnionCommonStockorLILCOCommonStockheldunderBrooklynUnion'sorLILCO',sDividendReinvestmentandStockPurchasePlansorBrooklynUnion'sEmployeeSavingsPlan,DiscountStockPurchasePlanforEmployeesandLong-TermPerformanceIncentiveCompensationPlan(collectively,the"BrooklynUnionPlans")orLILCO'sEmployeeStockPurchasePlan,RetainerPlan,IncentivePlanandStockPlan(collectively,the",LILCOPlans")immediatelypriortotheconsummationofthe-MergerortheShareExchange,asthecasemaybe,willbeautomaticallyexchangedfortheapplicablenumberofsharesofHoldingCompanyCommonStock,whichshareswillbeheldunderandpursuanttoBrooklynUnion'sorLILCO'sDividendReinvestmentandStockPurchasePlansorbeissued,undersuchBrooklynUnionPlanorLILCOPlan,asthecasemaybe;and(ii)upontheconsummationoftheMerger,eachunexpiredandunexercisedoptionto,purchasesharesofBrooklynUnionCommonStockunde'rtheLong-TermPerformanceIncentiveCompensationPlan,whethervestedorunvested,willbeautomaticallyconvertedintoanoptiontopurchase.anumberofsharesofHoldingCompanyCommonStockequaltothenumberofsharesofBrooklynUnionCommonStockwhichcouldhavebeenpurchasedimmediatelypriortotheconsummationoftheMerger(assumingfullvesting)undersuchoption,atapricepershareofHoldingCompanyCommonStockequaltothepershareoptionexercisepricespecifiedinsuchoption.HNoSolicitationofTransactionsTheBrooklynUnion/LILCOAgreement.providesthatnopartytheretowill,andeachsuchpartywillcausetitssubsidiariesnotto,andeachsuchpartywillnotpermitanyofitsofficers,directors,employees,accountants,counsel,investmentbankers,financialadvisorsandotherrepresentatives(collectively,"Representatives")to,andeachsuchpartywilluseitsbesteffortstocausesuchpersonsnotto,directlyorindirectlyinitiate,solicitor75 encourage,ortakeanyactiontofacilitatethemakingofanyofferorproposalwhichconstitutesorisreaso'nablylikelytoleadto,anyBusinessCombinationProposal(asdefinedbelow),or,intheeventofanunsolicitedBusinessCombinationProposal,excepttotheextentrequiredbytheirfiduciarydutiesunderapplicablelawifsoadvisedinawrittenopinionofoutsidecounsel,engageinnegotiationsorprovideanyinformationordatatoany-personrelatingtoanyBusinessCombinationProposal.Asusedabove,"BusinessCombinationProposal"me~nsanytenderorexchangeoffer,proposalforamerger,consolidationorotherbusinesscombinationinvolvinganypartytotheBrooklynUnion/LILCOAgreementoranyofitsmaterialsubsidiaries,oranyproposal'oroffer(ineachcase,whetherornotinwritingandwhetherornotdeliveredtotheshareholdersofapartygenerally)toacquireinanymanner,directlyorindirectly,asubstantialequityinterestinorasubstantialportionoftheassetsofanypartytotheBrooklynUnion/LILCOAgreementoranyofitsmaterialsubsidiaries,otherthanpursuanttothetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementandbytheLIPAAgreement.TheBrooklynUnion/LILCOAgreementprovidesthatuntiltheterminationorconsummationofthetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement,nopartymayengageinanynegotiationsormaterialdiscussionswithLIPAor'tsrepresentativesoragentswithoutpriornotificationtoorthepresenceoftheotherparties,and,willnotprovideanyinformationordatatoLIPAwithoutprovidingacopythereoftotheotherparties.NothingcontainedintheBrooklynUnion/LILCOAgreementwillprohibitapartyfromtakinganddisclosingtoitsshareholdersapositioncontemplatedbyRule14e-2(a)undertheSecuritiesExchangeActof1934,asamended,withrespecttoaBusinessCombinationProposalbymeansofatenderoffer.IAdditionalAgreementsOtherTransaclions.Asdiscussedabove,theBrooklynUnion/LILCOAgreementcontemplatestheexecutionanddeliveryof,andperformanceofthetransactionscontemplatedby,theKeySpanExchangeAgreement.TheBrooklynUnion/LILCOAgreementrecognizesthat,inconnectionwiththeLIPAAgreement,LILCOandBrooklynUnioncontemplatetheformationofapartnershipforthepurposeofpurchasinginterestratehedgecontracts,tobefundedthroughcapitalcontributionsofupto$30millionbyeachofthem(theformationofsuchpartnershipandthepurchaseofsuchcontractsbeingreferredtohereinasthe"HedgeArrangements").TheBrooklynUnion/LILCOAgreementprovidesthatLILCOwillnotmodify,amendorterininatetheLIPAAgreement,andwillnotprovideanyconsent,waiverorreleasethereunderwithoutthepriorwrittenconsentofBrooklynUnion.Rale145Affiliates.BrooklynUnionandLILCOhaveidentifiedinletterstooneanotherallpersonswhoare,andtosuchperson'sbestknowledgewhowillbeattheClosingDate,affiliatesofBrooklynUnionandLILCO,respectively,assuchtermisusedinRule145undertheSecuritiesAct(orotherwiseunderapplicableSECaccountingreleaseswithrespecttopoolingofinterestsaccountingtreatment).EachofBrooklynUnionandLILCOhasagreedtouseallreasonableeffortstocausetheirrespectiveaffiliates(includinganypersonwhomaybedeemedtohavebecomeanaffiliateafterthedateoftheletterreferredtointheprecedingparagraph)todelivertotheHolding.CompanyonorpriortotheClosingDateawrittenagreementcustomaryfortransactionsofthisnatureandinformandsubstancereasonablysatisfactorytoBrooklynUnionandLILCO.Ifanypersonrefusestoprovidesuch'awrittenagreement,then,inlieuofreceiptofsuchwrittenagreement,theHoldingCompanyisentitledtoplaceappropriatelegendsontheHoldingCompanyCommonStockcertificatestobereceivedbysuchpersonpursuanttothetermsoftheBrooklynUnion/LILCOAgreement,andtoissueappropriatestocktransferiristructionstothetransferagentfortheHoldingCompanyCommonStock,to76 ttheeffectthatthesharesofHoldingCompanyCommonStockreceivedortobereceivedbysuchpersonpursuanttothetermsoftheBrooklynUnion/LILCOAgreementmayonlybesold,transferredorotherwiseconveyed,andtheholderthereofmayonlyreducehisinterestinorrisksrelatingtosuchsharesofHoldingCompanyCommonStock,pursuanttoaneffectiveregistrationstatementundertheSecuritiesAct,incomplianceivithRule145thereof,asamendedfromtimetotime,orinatransactionwhich,intheopinionoflegalcounselsatisfactorytotheHoldingCompany,isexemptfromtheregistrationrequirementsoftheSecuritiesAct.TheforegoingrestrictionsonthetransferabilityofHoldingCompanyCommonStockapplytoallpurportedsales,transfersandotherconveyancesofthesharesofHoldingCompanyCommonStockreceivedortobereceivedbysuchpersonpursuanttotheBrooklynUnion/LILCOAgreementandtoallpurportedreductionsintheinterestinorrisksrelatingtosuchsharesofHoldingCompanyCommonStock,whetherornotsuchpersonhasexchangedthecertificatespreviouslyevidencingsuchpersons'.,-sharesofBrooklynUnionCommonStockorLILCOCommonStock,asthecasemaybe,forcertificatesevidencingsharesofHoldingCompanyCommonStockintowhichsuchshareswereconverted.ConditionstoEachParty'sObligationtoEffecttheCombinationTherespectiveobligationsofLILCOandBrooklynUniontoeffecttheCombinationaresubjecttothefollowingconditions:(a)theadoptionbytheshareholdersofBrooklynUnionandLILCOoftheBrooklynUnion/LILCOAgreementandthetransactionscontemplatedthereby;(b)notemporaryrestrainingorderorpreliminaryorpermanentinjunctionorotherorderwillbeineffectthatpreventsconsummationoftheCombination,and'theCombinationandothertransactionscontemplatedbytheBrooklynUnion/LILCOAgreementwillnotbeprohibitedunderanyapplicablelaw;(c)theJointProxyStatement/Prospectuswillhavebecomeeffectiveandwillnotbethesubjectofastoporder;(d)thesharesofHoldingCompanyCommonStocktobeissuedinconnectionwiththeCombinationwillhavebeenapprovedforlistingontheNewYorkStockExchangeuponofficialnotice'ofissuance;(e)thereceiptofallmaterialgovernmentalandregulatoryauthorizations,conscnts,ordersorapprovalsshallhavebeenobtained,shallhavebecomeFinalOrders(asdefined.intheBrooklynUnion/LILCOAgreement)andshallnotimposetermsorconditionswhichcouldreasonablybeexpectedtohaveamaterialadverseeffect;(f)unlesstheLIPA'ransactionhasbeenconsummated,orwillbeconsummatedcontemporaneouslywiththeCombination,thereceiptbyeachofLILCOandBrooklynUnionoflettersfromtheirindependentpublicaccountantsstatingtliattheyconcurwithmanagement'sconclusionthatnoconditionsexistthatwouldprecludethetransactionscontemplatedbytheBrooklynUnion/LILCOAgreemcntfromqualifyingaspoolingofintereststransactionsundergenerallyacceptedaccountingprinciples;'g)iftheLIPA'Agreementhasnotbeenterminated,theissuancebytheHoldingCompanyofanappropriateamount,notine'xcessof$100million,ofpreferredstocktosuchpersons(whichpersonsmayinclude,amongothers,definedbenefitplans,employees,officersanddirectorsofBrooklynUnionorLILCO,andinvestmentbankers)anduponsuchtermssoastocausethefortnationoftheHoldingCompany"tobeatransactiontowhichSection351oftheCodedoesnotapply;.(h)thereceiptofanopinion,datedasoftheClosingDate,totheeffectthattheShareExchangewillsatisfytherequirementsofSection351oftheCode,iftheLIPATransactionhasbeenterminated;(i)withrespecttoeachofBrooklynUnionandLILCO,theperformanceinallmaterialrespectsofallobligationsoftheotherpartyrequiredtobeperformedundertheBrooklynUnion/LILCOAgrccmentandtheStockOptionAgreements;(j)withrespecttoeachofBrooklynUnionandLILCO,theaccuracyof-therepresentationsandwarrantiesoftheotherpartysetforthintheBrooklynUnion/LILCOAgrcemcntandtheStockOption77 AgreementsonandasofDecember29,1996andasoftheClosingDate(exceptaswouldnotreasonablybelikelytoresultinamaterialadverseeffect);(k)LILCOandBrooklynUnionreceiveofficers'ertificatesfromeachotherstatingthatcertainconditionssetforthintheBrooklynUnion/LILCOAgreementhavebeensatisfied;(1)withrespecttoeachofBrooklynUnionandLILCO,theabsenceofanymaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsoftheotherpartyanditssubsidiariestakenasawhole;-(m)withrespecttoBrooklynUnion,thereceiptofanopinion,datedasoftheClosingDate,totheeffectthattheMergerwillqualifyasareorganizationpursuanttoSection368oftheCode;and(n)withrespecttoeachofBrooklynUnionandLILCO,thereceiptby,theother,partyofcertainmaterialthird-partyconsents.Inaddition,theBrooklynUnion/LILCOAgreementprovidesthatitisaconditiontotheobligationofBrooklynUniontoholdtheBrooklynUnionMeetingthattheopinionofMerrillLynchattachedheretoasAnnexEhasnotbeenwithdrawn,anditisaconditiontotheobligationofLILCOtoholdtheLILCOMe'etingthattheopinionofDillonReadattachedheretoasAnnexFhasnotbeenwithdrawn.AtanytimepriortotheEffectiveTime,totheextentpermittedbyapplicablelaw,theconditionstoBrooklynUnion'sorLILCO'sobligationstoconsummatetheCombination.maybewaivedbytheparties.Anydeterminationtowaiveaconditionwoulddependuponthefactsandcircumstancesexistingatthetimeofsuchwaiverandwouldbemadebythewaivingparty'sBoardofDirectors,exercisingitsfiduciarydutiestosuchpartyanditsshareholders.tTerminationTheBrooklynUnion/LILCOAgreementmaybeterminatedatanytimepriortotheClosingDate,whetherbeforeorafterapprovalbytheshareholdersofLILCOandBrooklynUnion:(a)bymutualwrittenconsentoftheBoardsofDirectorsofBrooklynUnionandLILCO;(b)byeitherpartytotheBrooklynUnion/LILCOAgreement,bywrittennoticetotheotherparty,iftheEffectiveTimehasnotoccurredonorbeforeAugust31,1998(orApril28,1999ifallbutcertainspecifiedconditionshavebeenorarecapableofbeingfulfilledonAugust31,1998),butonlyifthefailureoftheEffectiveTimetooccurwasnotcausedbythatparty'sfailuretofulfillanyof.itsobligationsundertheBrooklynUnion/LILCOAgreement,andprovidedthatLILCOwillnothavetherighttoterminatetheBrooklynUnion/LILCOAgreementpursuanttothisprovisioniftheLIPAAgreementhasnotbeenterminated;(c)byeitherpartytotheBrooklynUnion/LILCOAgreement,bywrittennoticetotheotherparty,ifanyrequiredshareholderapprovalhasnotbeenobtainedatadulyheldmeetingofshareholdersoratanyadjournmentthereof;(d)byeitherpartytotheBrooklynUnion/LILCOAgreement,ifanystateorfederallaw,order,ruleorregulationisadoptedorissuedwhichhastheeffectofprohibitingtheCombination,orifanycourtofcompetentjurisdictionintheU.S.oranystatehasissuedanorder,judgmentordecreepermanentlyrestraining,enjoiningorotherwiseprohibitingtheCombination,andsuchorder,judgmentordecreehasbecomefinalandnonappealable;(e)byeitherLILCOorBrooklynUnion,upontwo-days'riornoticetotheotherparty,if:(i)suchpartyreceivesatenderofferoranywritten'offerorproposalwithrespecttoamergerofsuchparty,saleofamaterialportionofsuchparty'sassetsorotherbusinesscombinationinvolvingsuchparty(each,a"BusinessCombination")byapersonotherthanLILCO,inthecaseofBrooklynUnion,orBrooklynUnionorLIPA,inthecaseofLILCO,oranyoftheirrespectiveaffiliates,78 (ii)suchparty'sBoardofDirectorsdeterminesingoodfaiththatitsfiduciaryobligationsunderapplicablelawrequirethatsuchtenderofferorotherwrittenofferorproposalbeaccepted,(iii)theBoardofDirectorsofsuchpartyhasbeenadvisedinawrittenopinionofoutsidecounselthatnotwithstandingabindingcommitmenttoconsummateanagreementofthenatureoftheBrooklynUnion/LILCOAgreemententeredintointheproperexerciseoftheirapplicablefiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbytheotherparty,suchfiduciarydutieswouldalsorequirethedirectorstoreconsidersuchcommitmentasaresultofsuchtenderofferorotherwrittenofferorproposal,and4(iv)priortoanysuchtermination,suchpartyshall,andshallcauseitsrespectivefinancialandle'galadvisorsto,negotiatewiththeotherpartytomakesuchadjustmentsintheterms.andconditionsoftheBrooklynUnion/LILCOAgreementaswouldenablesuch'partytoproceedwiththetransactionscontemplatedtherebyonsuchadjustedterms;(f)byeitherLILCOorBrooklynUnion,bywrittennoticetotheotherparty,if:(i)theotherpartyisinbreachoftherepresentationsandwarrantiesitmadeintheBrooklynUnion/LILCOAgreementandsuchbreaches,individuallyorintheaggregate,wouldorwouldbereasonablylikelytoresultinamaterialadverseeffectonthebusiness,assets,financialcondition,'resultsofoperationsorprospectsofthenon-breachingpartyanditssubsidiariestakenasawhole,andsuchbreacheshavenotbeenremediedwithin20daysafterreceiptbythebreachingpartyofnoticeinwritingfromthenon-breachingparty,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)theotherparty(and/oritsappropriatesubsidiaries)hasnotperformedandcompliedinallrespectswithcertainagreementsandcovenantsrelatingtotheabsenceofchangesincapitalizationorissuanceofsecuritiesorhasfailedtoperformandcomply,inallmaterialrespects,withitsotheragreementsandcovenantsundertheBrooklynUnion/LILCOAgreementorundertheLILCOStockOptionAgreeinentortheBrooklynUnionStockOptionAgreement,asthecasemaybe,andsuchfailuretoperformorcomplyhasnotbeenremediedwithin20daysafterreceiptbythebreachingpartyofnoticeinwritingfromthenon-breachingparty,specifyingthenatureofsuch'failureandrequestingthatitberemedied,orf(iii)theBoardofDirectorsoftheotherpartyoranycommitteethereof(A)withdrawsormodifiesinanymanneradversetothepartygivingnoticeitsapprovalorrecommendationoftheBrooklynUnion/LILCOAgreementortheCombination,(B)failstoreaffirmsuchapprovalorrecommendationupontherequestofthepartygivingnotice,(C)approvesorrecommendsanyacquisitionofitselforamaterialportionofitsassetsoranytenderoffer.forshares,ofitscapitalstock,ineachcasebyapartyotherthanthepartygivingnoticeoranyofitsaffiliates(otherthan,inthecaseoftheLILCOBoard,-withrespect.totheLIPAAgreement,assuchagreementmaybeamendedfromtimetotimewiththeconsentofBrooklynUnion,andwithrespecttothe,transactionscontemplatedthereby)or(D)resolvestotakeanyoftheactionsspecifiedinclause(A),(B)or(C);or,(g)byeitherLILCOorBrooklynUnion,bywrittennoticetotheotherparty,ifanyoftheconditionsofeitherparty'sobligationtoeffecttheCombinationcannotbesatisfied.IftheBrooklynUnion/LILCOAgreementisterminatedbyeitherLILCOorBrooklynUnionasprovidedabove,thenneitherLILCO,BrooklynUnionnortheirrespectiveofficersordirectorswillbeliableorhaveanyobligationsthereunderotherthan:'(i)toholdinstrictconfidencealldocumentsfurnished'totheotherinaccordancewiththeConfidentialityAgreementbetweenLILCOandBrooklynUnion,datedOctober24,1995,asitmaybeamendedfromtimetotime;(ii)topaycertainfeesandexpensespursuanttocertainspecifiedprovisionsoftheBrooklynUnion/LILCOAgreementdescribedbelowunder"-TerminationFees"and(iii)tocomplywithcertainotherspecifiedprovisionsoftheBrooklynUnion/LILCOAgreement.t'IIftheBrooklynUnion/LILCOAgreementisterminatedpursuanttoitsterms,LILCOandtheHoldingCompanymayconsummatetheShareExchangeforthepurpose,ofconsummatingtheLIPATransactiononthebasisofoneshareofHoldingCompanyCommonStockforeachshareofLILCOCommonStock.79 TerminationFeesTheBrooklynUnion/LILCOAgreementprovidesthatifsuchagreementisterminablebyeither(butnotboth)ofBrooklynUnionandLILCOforbreachesofanyrepresentationsorwarrantiescontainedtherein,orofagreementsandcovenantscontainedthereinorintheLILCOStockOptionAgreementortheBrooklynUnionStockOptionAgreementdescribedbelow,asthecasemaybe,andthenon-breachingpartyterminatespursuanttotheprovisionsoftheBrooklynUnion/LILCOAgreementdescribedinclauses(f)(i)and(f)(ii)under"-Termination"above,then,ifsuchbreachisnotwillful,thenon-breachingpartyisentitledtoreimbursementofitsdocumentedout-of-pocketexpenses,nottoexceed$10million.Intheeventofaterminationpursuanttosuchprovisionsasaresultofawillfulbreach,thenon-breachingpartywillbeentitledtoitsout-of-pocketexpenses(whichshallnotbelimitedto$10million)andanyremediesitmayhaveatJaworinequity,providedthat,if:(i)atthetimeofthebreachingparty'swillfulbreach,therehasbeenathird-partytenderofferorproposalwithrespecttoaBusinessCombinationinvolvingthebreachingpartyoroneofitsaffiliateswhichatthetimeofterminationhasnotbeenrejectedbythebreachingparty'andwithdrawnbythethirdparty,and(ii)withintwoandone-halfyearsofanyterminationbythenon-breachingparty,thebreachingpartyoranaffiliatethereofbecomesasubsidiaryofsuchthirdpartyoroneofitsaffiliatesoracceptsanoffertoconsummateorconsummatesaBusinessCombinationwithsuchthirdparty,thensuchbreachingparty,uponthesigningofadefinitiveagreementrelatingtosuchaBusinessCombination,or,ifnosuchagreementissignedthenattheclosingofsuchBusinessCombination,willpaytothenon-breachingpartyanadditionalfeeequalto$65million(ifthe,breachingpartyisLILCO)or$35million(ifthebreachingpartyisBrooklynUnion).TheBrooklynUnion/LILCOAgreementrequirespaymentofanadditionalterminationfeeincertaincircumstances,if:(i)theBrooklynUnion/LILCOAgreementisterminated:(A)asaresultofthedeterminationingoodfaithbyeithertheLILCOBoardortheBrooklynUnionBoardthatitsfiduciaryobligationsrequiretheacceptancebyeitherLILCOorBrooklynUnion,asthecasemaybe,ofathird-partytenderofferorproposalwithrespecttoaBusinessCombinationpursuanttotheprovisionsoftheBrooklynUnion/LILCOAgreementdescribedinclause(e)under"-Termination"above,(B)followingawithdrawalormodificationinamanneradversetotheotherpartybytheBoardofDirectorsofsuchpartyofitsrecommendationoftheCombination,afailureoftheBoardofDirectorsofsuchpartytoreaffirmitsapprovalorrecommendationoftheBindingShareExchangesuponrequestoronapprovalorrecommendationbytheBoardofDirectorsofsuchpartyofanyacquisitionbyathirdpartyofsuchpartyoramaterialportionofsuchparty'sassets,or(C)asaresultofsuchparty'smaterialfailuretoconveneashareholdermeeting,distributeproxymaterialsand,subjecttoitsBoardofDirectors'iduciaryduties,recommendtheBrooklynUnion/LILCOAgreementandtheCombinationtoitsshareholders;(ii)atthetimeofsuchterminationorpriortothemeetingofsuchparty'sshareholders,thereshallhavebeenathird-partytender,offerorproposalwithrespecttoaBusinessCombinationinvolvingsuchpartyoranyofitsaffiliateswhichhasnotbeenrejectedbysuchpartyandwithdrawnbythethirdparty;and(iii)withintwoandone-halfyearsofanysuchterminationdescribedinclause(i)above,thepartywhichwasthesubjectofsuchofferorproposal(the"SubjectParty")becomesasubsidiaryoraffiliateofsuchofferororacceptsanoffertoconsummateorconsummatesaBusinessCombinationwithsuchofferor(orasubsidiaryoraffiliateofsuchofferor).UponthesigningofadefinitiveagreementbetweentheSubjectPartyandthethirdpartyor,ifnosuchagreementissigned,thenattheclosingoftheSubjectPartybecomingsuchasubsidiaryorsuchthird-partyBusiness80 tCombination,theSubjectPartymustpaytotheotherparty$75million(iftheSubjectPartyisLILCO)or$45~million(iftheSubjectPartyisBrooklynUnion),plus,ineithercase,theout-of-pocketfeesandexpensesincurredbytheotherpartyarisingoutof,inconnectionwithorrelatedtothetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement.TheBrooklyn,Union/LILCOAgreementprovidesalimitationonthetotalaggregateamountpayableasterminationfeesbyeitherpartypursuanttotheBrooklyn.,Union/LILCOAgreementandtheStockOptionAgreements.Thetotalamountofall,terminationfeespayablewillnot.exceed$90millionforLILCO(anditsaffiliates)"and$50millionforBrooklynUnion(anditsaffiliates).Intheeventthatthe,BrooklynUnion/LILCOAgreementbecomesterminableuttdercircumstancesinwhicha$75millionor$45millionterminationfeecouldbepayablebyonepartypursuanttotheimmediatelyprecedingparagraph,sucheventwillalsoconstitutea"TriggerEvent"undertheStockOptionAgreementpursuanttowhichsuchpayingpartyisobligatedtoissueanoptiontotheotherpartysoastoentitletheotherpartytorequiresuchpayingpartytorepurchasesuchoptionortheOptionShares(asdefinedbelow)issueduponexercisethereof;See"TheStockOptionAgreements."DForpurposesoftheprovisionsoftheBrooklynUnion/LILCOAgreementrelatingtotheterminationfee,theLIPAAgreementisdeemedtobeaproposalforaBusinessCombinationinvolvingLILCO,andLIPAisdeemedtobetheofferorwithrespectthereto,andanyfeeforthebenefitofBrooklynUnionwouldbepayableundersuchprovisionsatthetimetheBrooklynUnion/LILCOAgreementisterminated;providedthatiftheBrooklynUnion/LILCOAgreementisterminatedfollowingafailurebytheshareholdersofLILCOtoadopt'heBrooklynUnion/LILCOAgreement,thentheLIPAAgreementwillnotbedeemedaproposalforaBusinessCombinationinvolvingLILCOandnoterminationfeewillbepayabletoBrooklynUnionbyvirtueoftheLIPAAgreement.81 THESTOCKOPTIONAGREEMENTSThefollowingisabriefsummaryofthematerialtermsoftheAmendedandRestatedLILCOStockOptionAgreementandtheAmendedandRestatedBrooklynUnionStockOptionAgreement,copiesofwhichareattachedasAnnexBandAnnexC,respectively,andwhichareincorporatedhereinbyreference.Suchsummaryisqualtjiedinitsentir'etybyreferencetosuchAmendedStockOptionAgreements.TlieAmendedStockOptionAgreementsareintendedtoincreasethelikelihoodthattheCotnbinationwillbeconstunmatedinaccordancetviththetermsoftheBrool'lynVnion/LILCOAgreement.Conseqttently,certainaspectsoftheAmendedStockOptionAgreementsmayhavetheeffectofdiscouragingpersonswhomightnoivorpriortotheEffectiveTiniebeinterestedinacquiringalloforasignificantinterestin,orothenviseegectingaBusinessCombinationwith,BrooklynUnionor'LILCOfromconsideringorproposingsuchatransaction,evenifsuchpersonswerepreparedtooffertopayconsiderationtoshareholdersofBrooklynUnionorLILCO,asthecaseinaybe,whichIiadahigliervalue'thanthesharesofHoldingCompanyConimonStocktobereceived,pershareofBrooklynUtu'onCommonStock"orLILCOComtnonStock,asthecasemaybe,pursuantto'theBrooklynUnioiuLILCOAgreement.GeneralPursuanttomutualAinendedStockOptionAgreementsenteredintoconcurrentlywiththeBrooklynUnion/LILCOAgreement,LILCOhasgrantedtoBrooklynUnionanoptiontopurchase,undercertaincircumstances,upto23,981,964sharesofLILCOCommonStockatapriceof$19.725pershareandBrooklynUnionhasgrantedtoLILCOanoptiontopurchase,undercertaincircumstances,upto9,948,682sharesofBrooklyn'UnionCommonStockatapriceof$30.0375pershare(collectively,the"Options,"andtheholderofeachsuchOption,the"Optio'nHolder").SharesofLILCOCommonStockpurchasablebyBrooklynUnionandsharesofBrooklynUnionCommonStockpurchasablebyLILCOpursuanttotheOptionsarecollectivelyreferredtoas"OptionShares."Theexercisepriceispayable,attheOptionHolder'soption,incashor,subjecttoanyrequiredgovernmentalapprovals,insharesofcommonstockoftheOptionHolder.TheOptionsmaybeexercisedb'ytheOptionHolder,inwholeorinpart,atanytimeorfromtimetotimeaftertheBrooklynUnion/LILCOAgreementbecomesterminablebysuchOptionHolderundercircumstanceswhichcouldentitlesuchOptionHolderto.terminationfeesasaresultofaTriggerEvent(asdefinedintheAmendedStockOptionAgreementsandreferredtoaboveunder"ThcAgreementandPlanofExchangeandMerger-TerminationFees"),regardless'ofwhethertheBrooklynUnion/LILCOAgreementisactuallyterminatedorwhetherthereoccursaclosingofanyBusinessCombination.TheOptionswillterminateupontheearlierof(i)theEffectiveTime,(ii)theterminationoftheBrooklynUnion/LILCOAgreementpursuanttoitsterms(otherthanaterminationuponorduringthecontinuanceofaTriggerEvent),or(iii)180daysfollowinganyterminationoftheBrooklynUnion/LILCOAgreementuponorduringthccontinuanceofaTriggerEvent(or,ifattheexpirationofsuch180-dayperiod,theOptioncannotbeexercisedbyreasonofanyapplicablejudgment,decree,order,laworregulation,tenbusinessdaysaftersuchimpedimenttoexercisehasbeenremovedorhasbecomefinalandisnotsubjecttoappeal,butinnoeventunderthisclause(iii)laterthanApril28,1999).Notwithstandingtheforegoing,.noOptionmaybeexercised(a)iftheOptionHolderisinmaterialbreachofanyofitsmaterialrepresentationsorwarranties,orinmaterialbreachofanyofitscovenantsoragreementscontainedintheapplicableAmendedStockOptionAgreementorintheBrooklynUnion/LILCOAgreement,or(b)untilallnecessaryregulatoryapprovalshavebeenobtainedfortheacquisitionofsharespursuanttosuch<<Option.CertainRepurchascsUnderthetermsoftheAmendedStockOptionAgreements,atanytimeduringwhichtheOptionisexercisable(the"RepurchasePeriod"),theOptionHolderhastherightto'requiretheissueroftheOption(the82 "Issuer")torepurchasefromtheOptionHolderalloranyportionoftheOptionor,atanytimepriortoAugust31,1998(providedthatsuchdateshallbeextendedtoApril28,1999underthecircumstanceswherethedateafterwhicheitherpartymayterminatetheBrooklynUnion/LILCOAgreementhasbeenextendedtoApril28,1999),alloranyportionoftheOptionSharespurchasedpursuanttotheexerciseoftheOption.TheamountthattheIssuerwillpaytotheOptionHoldertorepurchasetheOptionisthedifferencebetweentheMarket/OfferPrice(asdefinedbelow)forsharesofIssuer'sCommonStockasofthedatetheOptionHoldergivesnoticeofitsintenttoexerciseitsrepurchaserights(the"NoticeDate")andtheexercisepricefortheOption,multipliedbythenumberofOptionSharespurchasablepursuanttotheOption,ortheportionthereoftobesorepurchased,butonlyiftheMarket/OfferPriceisgreaterthansuchexerciseprice.TheamountthattheIssuerwillpaytotheOptioriHoldertorepurchasetheOptionSharesistheexercisepricepaidbytheOptionHolderfortheOptionSharesplusthedifferencebetweentheMarket/OfferPriceandtheexercisepricepaidbytheOptionHolderfortheOptionShares(butonlyiftheMarket/OfferPriceisgreaterthansuchexerciseprice),multipliedbythenumberofOptionSharestobesorepurchased.Ifsuchrepurchasepricewasatalevelwhereacontemplatedrepurchasewouldotherwi'sebesubjecttoavoteoftheshareholdersoftheIssuerpursuanttoSection513(e)oftheNYBCL,thensuchrepurchasepricemaybereducedattheIssuer'soptiontoanamountwhichwouldpermitsuchrepurchasewithoutthenecessityforsuchashareholdervote.TheAmendedStockOptionAgreementsdefine"Market/OfferPrice"as'thehigherof(A)thepricepershareofferedasoftheNoticeDatepursuanttoanytenderorexchangeofferorotherBusinessCombinationofferwhichwasmadepriortothe,NoticeDateandnotterminatedorwithdrawnasofsuchdateor(B)theFairMarketValueoftheIssuer'sCommonStockasoftheNoticeDate(whichisdefinedintheStockOptionAgreementsastheaverageofthedailyclosingsalepriceforsuchsharesontheNewYorkStockExchangeduringthetenNewYorkStockExchangetradingdayspriortothefifthNewYorkStockExchangetradingdayprecedingsuchdate).ThepricepcrsharefortherepurchasebytheIssuerofOptionSharespurchasedbytheOptionHolderpursuant,totheOptionisthehighestpricepershareofferedpursuanttoatenderorexchangeofferorotherBusinessCombinationofferwhichwasmadeduringtheRepurchasePeriodpriortotheNoticeDate.hAtanytimepriortoAugust31,1998(whichdatemaybeextendedtoApril28,1999underthecircumstancesdescribedabove),theOptionHoldermayalsorequiretheIssuertoselltotheOptionHolderanysharesoftheOptionHolder'sCommonStockdeliveredbytheOptionHoldertotheIssuerinpaymentfortheexercisepriceoftheOption,atthepriceattributedtosuchsharesforsuchpurposeplusinterestattherateof6.5%perannum(fromthedateofthedeliveryofsuchsharesthroughthedateofsuchrepurchase)lessanydividendspaidordeclaredandpayablethereon.RestrictionsonTransferTheAmendedStockOptionAgreementsprovidethatneitherpartymaysell,assign,pledgeorotherwisedisposeofortransferthesharesitacquirespursuanttotheAmendedStockOptionAgreements(collectively,the"RestrictedShares")exceptasspecificallyprovidedforintheAmendedStockOptionAgreements.Inadditiontotherepurchaserightsdescribedaboveunder"-CertainRepurchases,"subsequenttotheterminationoftheBrooklynUnion/LILCOAgreement,thepartieshavetherighttohavesuchsharesoftheotherpartyregisteredundertheSecuritiesActforsaleinapublicoffering.TheAmendedStockOptionAgreementsalsoprovidethat,followingtheterminationoftheBrooklynUnion/LILCOAgreement,eitherpartymaysellanyRestrictedSharespursuanttoatenderorexchangeofferapprovedorrecommended,orotherwisedeterminedtobefairandinthebestinterestsofsuchotherparty'sshareholders,byamajorityoftheBoardofDirectorsofsuchotherparty.KeySpanwillsucceedtothe,rightsandobligationsofBrooklynUnionundertheAmendedStockOptionAgreementsiftheKeySpanAgreementisadoptedbyBrooklynUnioncommonshareholdersattheBrooklynUnionMeetingandtheKeySpanShareExchangeisconsummated.Insuchevent,amongotherthings,KeySpanCommonStock,andnotBrooklynUnionCommonStock,willbesubjecttoissuanceuponanyexerciseoftheAmendedBrooklynUnionStockOptionAgreement.83 THELIPATRANSACTIONThefollowingisasummaryofthematerialtetvnsoftfieLIPAAgreement,whichisattachedasAnnexDandwhichisincorporatedlrereinbyreference.ThissummaryisqualifiedinitsentiretybyreferencetotheLIPAAgreement.AgreementandPlanofMergerLILCOandLIPAenteredintotheLIPAAgreementasofJune26,1997.TheLIPAAgreementrequires:(i)LIPAtoformasubsidiary(referredtoas"LIPASub")andtocauseLIPASubtoexecuteacounterpartoftheLIPAAgreement;and(ii)LILCOtoformtheHoldingCompanyandtocausetheHoldingCompanytoexecuteacounterpartoftheLIPAAgreementpriortotheclosingthereunder.TheLIPAAgreementprovidesthatLIPASub(asubsidiaryofLIPA)istomergewithandintoLILCO,withLILCOtobethesurvivingicorporation(the"SurvivingCorporation").BeforetheclosingoftheLIPATransaction(the"LIPAClosing"),theHoldingCompanywillformsubsidiaries,whicharereferredto'astheTransfereeSubsidiaries.At"thedirectionoftheHoldingCompany,theTransfereeSubsidiarieswillenterintocertainagreementsinconnectionwiththeLIPATransaction,whicharereferredtoastheBasicAgreements(asdefinedbelow).TheTransfereeSubsidiarieswillalsoreceivecertainassetsandpropertiesofLILCOtobetransferredaspartoftheLIPATransaction(the"TransferredAssets").TheLIPAAgreementsetsouttheprinciplesandprocedurestobeusedtodecidewhichLILCOassetsandpropertieswillbepartoftheTransferredAssetsandwhichwillremainwiththeSurvivingCorporation(the"RetainedAssets").ImmediatelypriortotheeffectivetimeoftheLIPAmergerdescribedbelow(the"LIPAEffectiveTime"),LILCOwilltransfertheTransferredAssetstotheTransfereeSubsidiariesinexchangefor(x)anumberofsharesofHoldingCompanyCommonStocktobedesignatedbytheHoldingCompanypriortosuchtimeandrepresentingtheHoldingCompany'sestimateofthefairmarketvalueoftheTransferredAssetsand(y)upto$75millionfaceamountofaseriesofHoldingCompanyPreferredStockhavingtermstobedesignatedbytheHoldingCompanypriortosuchtime(the"PrivatePlacementPreferredStock").'ItisanticipatedthatLILCOwillbeobligatedtosellthePrivatePlacementPreferredStock,immediatelypriortotheLIPAEffectiveTime,tooneormorepurchasersinaprivateplacement:ItisanticipatedthatthePrivatePlacementPreferredStockwill:(i)haveafinalmaturitydatemorethanfiveyearsaftertheLIPAEffectiveTime,(ii)benon-voting(exceptfor'ailuretopaydividendsforaspecifiedperiodoftime),(iii)benon-convertible,and(iv)haveothertermsandconditionstobedeterminedatthetimeofsale.AttheLIPAEffectiveTime,andwithoutanyactiononthepartofanyholderofanycapitalstockoftheHoldingCompany,LILCOorLIPASub,thesharesofcapitalstockofLILCOwillbt:treatedasfollows:(i)Thefollowingshares(the"CancelledShares")willbecancelledandretired,withoutthepaymentofanyconsideration:(a)EachshareofLILCOCommonStockandeachshareofLILCOpreferredstockthatisownedbyLILCOastreasurystock;and(b)EachshareofLILCOpreferredstockownedbyanydirectorindirectwhollyownedsubsidiaryoftheHoldingCompanyimmediatelypriortotheLIPAEffectiveTime.84 (ii)EachissuedandoutstandingshareofLILCOCommonS'tock,otherthanCancelledSharesandsharesofLILCOCommonStockheldbyanydissentingshareholder,willbecancelledandconvertedintotherighttoreceive:(a)anamountincashequaltotheCashPurchasePrice(asdefinedbelow)dividedbythenumberofsharesofLILCOCommonStockoutstanding,and(b)aproratadistributionoftheCompanyCommonStockreceivedbyLILCOinexchangefor,theTransferredAssets.t(iii)EachholderofsuchshareswillbedeemedtohaveappointedanExchangeAgent(asdefinedintheLIPAAgreement)asits'agenttoreceivethecashandtousethecashtosubscribeforsharesofHoldingCompanyCommonStock.Thenumberofshares'ofHoldingCompanyCommonStockdistributabletoholdersofLILCOCommonStockinrespectofeachshareofLILCOCommonStock,aggregatingthenumberdistributablefromtheHoldingCompanyCommonStockreceivedbyLILCOinexchangefortheTransferredAssetswiththenumberdistributablefromthepurchasebytheExchangeAgentofadditionalsharesofHoldingCompanyCommonStockoutofthecashmergerconsideration,willequal:(a)0.880sharesofHoldingCompany,CommonStockiftheCombinationisconsummatedconcurrentlywiththeLIPAEffectiveTime,or(b)oneshareofHoldingCompanyCommonStockiftheCombinationisnotconsummatedconcurrentwiththeLIPAEffectiveTime.(iv)IftheCombinationhasbeenconsummatedpriortotheLIPAEffectiveTime,then;(a)nosharesofHoldingCompanyCommonStockorPrivatePlacementPreferredStockwillbedeliveredinexchangefortheTransferredAssets,(b)theHoldingCompanyand/oroneormoreofitssubsidiaries,astheholdersofallthenoutstandingLILCOCommonStock,willreceiveallofthecashmergerconsideration,and(c)anadditional0.077sharesofHoldingCompanyCommonStockwillbedistributedtotherecordholdersasoftheEffectiveTimeofLILCOCommonStockinrespectofeachshareofLILCOCommonStock.V(v)EachissuedandoutstandingshareofSeriesAApreferredstockofLILCO,otherthanCancelledSharesandsharesofLILCOSeriesAApreferredstockheldbyanydissentingshareholder("Dissenting'PreferredShares"),willbe'ancelledandconvertedintotherighttoreceiveonefullypaidandnon-assessableshareofpreferredstockoftheHoldingCompanywithidenticalrights(includingdividendrates)anddesignationstotheSeriesAApreferredstock.(vi)EachissuedandoutstandingshareofLILCOPreferredStockthatissubjecttooptionalredemptionby,LILCOatorbeforetheLIPAClosingDate,otherthanCancelledShares,willbecalledforredemptionbyLILCOnotlaterthantheLIPAClosingDate.EachsuchshareofLILCOPreferredStockwillberedeemedforcashbyLILCOinaccordancewiththetermsapplicabletosuchshares.Theaggregateamountofaccruedbutunpaid-dividendsandredemptionpremiumspayablebyLILCOinrespectofsuchredemptionswillbe.paidbytheHoldingCompanytoLILCOnotlaterthantwobusinessdayspriortothedatetheapplicableredemptionpriceispayable.(vii)EachissuedandoutstandingshareofLILCOPreferredStock,otherthanCancelledShares,DissentingPreferredShares,sharesofSeriesAApreferredstockandredeemablepreferredstock(collectively,the"Non-redeemablePreferredStock"),willbecancelledandconvertedintotherighttoreceivecashintheamountofthesumof(x)theMake-WholeAmountand(y)accruedbutunpaiddividendsinrespectofsuchsharethroughtheLIPAClosingDate.AsusedinthisJointProxyStatement/Prospectus,"Make-WholeAmount"means,withrespecttosuchshare,anamountequaltothepresent,valueof:(i)thefaceorliquidationpreferenceamountofsuchshare,and85 (ii)theremainingdividendpaymentsdueonsuchsharebetweentheLIPAClosingDateandtheapplicableredemptiondatecomputedusingadiscountrateequaltotheapplicableFairMarketRatedividedby0.95."FairMarketRate"isdefinedastheGenericGeneralObligationFairMarketYieldforBaaratedLow/MediumCouponGeneralMunicipalObligationsatthetimeofthecomputationasreportedonBloomberg,withamaturitymostnearlyequaltotheperiodbetweencancellationandfinalredemptionofsuchseriesofNon-redeemablePreferredStockLow/MediumCouponGeneral.TheperiodbetweencancellationandredemptionreferstotheperiodbetweentheClosingDateand:(A)August1,2002,withrespecttotheSeriesCCPreferredStock,(B)March1,1999,withrespecttotheSeriesGGPreferredStock,(C)May1,2001,withrespecttotheSeriesQQPreferredStock,and(D)October16,2018,withrespectto"the,SeriesUUPreferredStock.Theamountbywhichtheaggregateamountpayableexceeds100%oftheaggregatefaceorliquidationpreferenceamountsforallsharesofNon-redeemablePreferredStockshallbepaidbytheHoldingCompanytotheSurvivingCorporationpromptlyaftertheLIPAEffectiveTime.eThe"CashPurchasePrice"tobepaidbyLIPAwillbe$2,497,500,000.TheCashPurchasePricewasdeterminedbaseduponthenetbookvalueoftheRetainedAssets,whichwas$2,500,800,000andissetforthintheproformconsolidatedbalancesheetofLILCOasofDecember31,1997preparedbyLILCO.TheCashPurchasePriceisbasedupontheassumptionthatthetotallongtermindebtednessofLILCOontheLIPAClosingDatewillnotexceed$3,576,000,000(the"RetainedDebtAmount").The,RetainedDebtAmountwillbeadjustedbaseduponitsnctbookvalue,asrefiectedonLILCO'sauditedconsolidatedbalancesheetasoftheLIPAClosingDate,asfollows.TheRetainedDebtAmountwillbeeither:(i)increasedbytheamount,ifany,bywhichthenetbookvalueoftheRetainedAssetsexceeds$2,500,800,000;or(ii)decreasedbytheamount,ifany,bywhichthenetbookvalueoftheRetainedAssetsislessthan$2,500,800,000.AttheLIPAClosing,theHoldingCompanywill,andwillcauseeachoftheTransfereeSubsidiariesto,executeanddeliverpromissorynotes(the"PromissoryNotes")onthefollowingterms:(i)Theaggregateprincipalamountwillbeequaltotheexcess,ifany,oftheindebtednessofLILCOoutstandingontheLIPAClosingDateovertheRetainedDebtAmount.(ii)TheratesandmaturitieswillcorrespondtoeachportionofdebtunderlyingtheindebtednessofLILCOontheLIPAClosingDate;provided,however,thattheinterestandprincipalpaymentdateswillbeadjustedtorequirepaymentbytheHoldingCompany30dayspriortothecorrespondingpaymentdatesontheunderlyingdebt.LILCOcurrentlyhasaseriesof7.3%DebenturesdueJuly15,1999,withanapproximateaggregate,principalamountcurrentlyoutstandingof$397million,andaseriesof8.20%DebenturesdueMarch15,2023,withanapproximateaggregateprincipalamountcurrentlyoutstandingof$270million.Subjecttoobtainingallrequiredconsents,theHoldingCompanywillassumetheseobligationsattheLIPAClosing.CertainothertaxexemptauthorityfinancingnoteswillbeidentifiedbythepartiestotheLIPAAgreementandassumedbytheHoldingCompany(subjectto'obtainingallrequiredconscntsandtotaxcounsel'sconcurrence).'"TheLIPAAgreenientcontainscustomaryrepresentations,warrantiesandcovenantsbyeachoftheHoldingCompany,LILCO,LIPAandLIPASub.TherespectiveobligationsofthepartiestotheLIPAAgreementtoeffecttheLIPATransactionaresubjecttothesatisfactionofcertainconditionsonorpriortotheLIPAClosingDate,including,amongothers:(i)receiptofcertainstatutoryapprovals;(ii)entryintoeachoftheotherBasicAgreementsbytherelevantparties; (iii)receiptoffavorableprivateletterrulingswithrespecttoSection337(d)oftheCode;and(iv)LIPAhavingobtainedfinancingsufficienttofundtheCashPurchasePriceandcertainothertransactions.TherespectiveobligationsofthepartiesfoeffecttheLIPATransactionarealsosubjecttotheconditionthat,onorpriortotheLIPAClosingDate,either:(i)thetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementwillhavebeenconsummated,(ii)theBrooklynUnion/LILCOAgreementwillhavebeenterminatedor(iii)allconditionstoconsummationofthetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementwillhavebeensatisfiedorwaivedandsuchtransactionswillbeconsummatedpromptlyaftertheLIPAClosing.TheLIPAAgreementissubjecttotermination'bythe.partiesincertaincircumstances,including,amongothers,bytheHoldingCompanyandLILCO,ontheonehand,orLIPAandLIPASub,ontheotherhand,iftheLIPAClosinghasnotoccurredonorbeforeAugust31,1998(orApril28,1999ifallbutcertainspecifiedconditions,havebeenorarecapableofbeingfulfilledonAugust31,1998),butonlyifthefailureoftheLIPAClosingtooccur,wasnotcausedbytheterminatingparty'sfailuretofulfillanyofitsobligationsundertheLIPAAgreement.OtherBasicAgreementsInconnectionwiththeLIPATransaction,thepartiesagreedtoenterintotheLIPAAgreement,thePromissoryNotesandcertainotheragreements(the"BasicAgreements"),whichareherebyincorporatedbyreference.See"WhereYouCanFindMoreInformation".TheBasicAgreementsinclude:1.ManagementServicesAgreement,wherebyasubsidiaryoftheHoldingCompanyagrees,amongotherthings,toprovidealloperation,maintenanceandconstructionservicestoLIPAfor8years;2.PowerSupplyAgreement,wherebyasubsidiaryoftheHoldingCompanyagrees,amongotherthings,tosupplyLIPAwithcapacityandenergyfromLILCO'sexistingGeneratingFacilities(asdefinedintheLIPAAgreement)inordertoallowLIPAtoprovideelectricitytoitscustomersonLongIslandfor15years;3.~EnergyManagementAgreement,wherebyasubsidiaryofthe'oldingCompanyagrees,amongotherthings,tomanagetheSystemPowerSupply(asthereindefine'd)onbehalfofLIPAand,asagentforLIPA,topurchasefuelsuppliesfortheGeneratingFacilitiesfor15years;4.GenerationPurchaseRightAgreement,pursuanttowhichLIPAhastherightduringthefourthyearaftertheLIPAClosingtopurchasetheGeneratingFacilitiesforfairmarketvalue;5.GuarantyAgreement,wherebytheHoldingCompanyguaranteescertainobligationsofitssubsidiaries'ndertheotherBasicAgreements;and6.LiabilitiesUndertakings,wherebytheHoldingCompanyandthcTransfereeSubsidiaries,ontheonehand,andLIPAandtheSurvivingCorporation,ontheotherhand,agreetoassumecertainliabilitiesandtoindemnifyoneanotherincertainsituationsinconnectionwiththeLIPATransaction.87 SELECTEDINFORMATIONCONCERNINGLILCOBusinessofLILCOLILCOwasincorporatedin1910undertheTransportationCorporationsLawoftheStateofNewYorkandsupplieselectricandgasserviceinNassauandSuffolkCountiesandtotheRockawayPeninsulainQueensCounty,allonLongIsland,NewYork.ThemailingaddressofLILCOis175EastOldCountryRoad,Hicksvillc,NewYork11801anditsgeneraltelephonenumberis(516)755-6650.Territory.LILCO'sserviceterritorycoversanareaofapproximately1,230squaremiles.Thepopulationoftheservicearea,accordingtoLILCO's1996estimate,is2.7millionpersons,includingapproximately98,000personswhoresideinQueensCountywithintheCityof'NewYork."The1996populationestimatereflectsa0.7%increasesincethe1990census.Approximatt:ly80%ofallworkersresidinginNassauandSuffolkCountiesareemployedwithinthetwocounties.In1996,totalnon-agriculturalemploymentinNassauandSuffolkCountiesincreasedbyapproximately12,500positions,anemploymentincreaseof1.1%.LILCOservesapproximatelyonemillionelectriccustoinersofwhich921,000areresidential.LILCOreceivesapproximately49%ofitselectricrevenuesfromresidentialcustomers,48%fromcommercial/industrialcustomersand3%fromsalestootherutilitiesandpublicauthorities.LILCOalsoservesapproximately460,000gascustomers,412,000ofwhichareresidential,accountingfor61%ofthegasrcvcnueswiththe,balanceofthegasrevenuesmadeupbythecommerciaVindustrialcustomersandoff-systemsales.Employees.AsofMarch31,1997,LILCOh5d5,443full-timeemployees,ofwhich2,241belongtoLocal1049and1,292belongtoLocal1381ofthcInternationalBrotherhoodofElectricalWorke'rs.EffectiveFebruary14,1996,LILCOandtheseunionsagreeduponcontractsvvhichwillexpireonFebruary13,2001.Thecontractsprovide,amongotherthings,forwageincreasestotaling15.5%overthetermoftheagreements.RegulationandAccountingConlrols.LILCOissubjecttoregulationbythePSCwithrespecttorates,issuancesandsalesofsecurities,adequacyandcontinuanceofservice,safetyandsitingofcertainfacilities,'ccounting,conservationofenergy,managementeffectivenessandothermatters.Toensurethatitsaccountingcontrolsandproceduresareconsistentlymaintained,LILCOactivelymonitorsthesecontrolsandprocedures.TheAuditCommitteeofLILCO'sBoard'ofDirectors,aspartofitsresponsibilities,periodicallyre'viewsthismonitoringprogram.LILCOisalsosubject,incertainofitsactivities,fothejurisdictionoftheUnitedStatesDepartmentofEnergyandtheFERC.Inadditiontoitsaccountingjurisdiction,FERChasjurisdictionovertheratesLILCOmaychargeforthesaleofelectricenergyforresaleininterstatecommerce,includingtheratesLILCOcliargesforelectricitysoldfo'municipalelectricsystem'swithinL'ILCO'sterritory,andforthetransmission,throughLILCO'ssystem,ofelectricenergytootherutilities,andforthepricing,termsandconditionsoftnnsmissionanddistributionserviceswhenLILCOprovidestheseservicesseparatelyfromitstraditionalfull-requirementsretailelectricservice.FERCalsohassomejurisdictionoveraportionofLILCO'sgassuppliesandsubstantialjurisdictionovertransportationtoLILCO,ofitsgassupplies.HOperationofNineMilePointNuclearPbwerStationUnit2,anuclearfacilityinwhichLILCOhasan18%interest,issubjecttoregulationbytheNRC.AdditionalinformationconcerningLILCOanditssubsidiariesisincludedintheLILCOdocumentsfiledwithCommissionwhichareincorporatedby,reference,herein.See"WhereYouCanFindMoreInformation."88 ComparisonofShareholders'ightsTherightsofBrooklynUnionshareholdersarecurrentlygovernedbytheNYBCL,theBrooklynUnionCertificateandtheBrooklynUnionBy-Laws.TherightsofLILCO'shareholdersarecurrentlygovernedbytheNYBCL,theLILCOCertificateandtheLILCOBy-Laws.UponconsummationoftheCombination,therightsofBrooklynUnionshareholdersandLILCOshareholderswhobecomeshareholdersoftheHoldingCompanywillbegovernedbytheNYBCL,theHoldingCompanyCertificateandtheHoldingCompanyBy-Laws.ThefollowingaresummariesofcertaindifferencesbetweenthecurrentrightsofBrooklynUnionandLILCOshareholdersandthoseofHoldingCompanyshareholdersaftertheCombination.ThefollowingdiscussionsarenotintendedtobecompleteandarequalifiedbyreferencetotheNYBCL,theBrooklynUnionCertificate,theBrooklynUnionBy-Laws,theLILCOCertificate,theLILCOBy-Laws,theHoldingCompanyCertificateandtheHoldingCompanyBy-Laws.CopiesoftheHoldingCompanyCertificateandtheHoldingCompanyBy-Laws,insubstantiallytheformstobeadoptedattheEffectiveTime,areattachedtothisJointProxyStatement-ProspectusasAnnexesGandH.CopiesoftheBrooklynUnionCertificate,theBrooklynUnionBy-Laws,theLILCOCertificateandtheLILCO'By-LawsareincorporatedbyreferencehereinandwillbesenttoholdersofsharesofBrooklynUnionCommonStockandLILCOCommonStock,respectively,uponrequest.See"WhereYouCanFindMoreInformation."ComparisonoftheHoldingCompany'sCertificateofIncorporationandBy-LawstoLILCO'sCertificateofIncorporationandBy-LawsAntliorizedCapita/.ThetotalauthorizedcapitalstockoftheHoldingCompany.willbe450,000,000sharesofHoldingCompanyCommonStock,parvalue$.01pershare,and100,000,000sharesofHoldingCompanyPreferredStock,parvalue$.01pershare.ThetotalauthorizedcapitalstockofLILCOcurrentlyconsistsof150,000,000sharesofcommonstock,parvalue$5pershare,7,000,000sharesofpreferredstock,parvalue$100pershare,30,000,000sharesofpreferredstock,parvalue$25pershareand7,500,000sharesofpreferencestock,parvalue$1pershare.AttheLILCOMeeting,theLILCOshareholderswillbeaskedtoamendtheLILCOCertificateofIncorporationtoincreas'ethetotalamountofauthorizedLILCOCommonStockto160,000,000sharestoaccommodatethenumberofsharesof'LILCOCommonStockto6ereservedforissuancetoBrooklynUnioninconnectionwiththeLILCOStockOptionAgreement.RenmvalofDirectors;FillingVacanciesontlieZIoardofDirectors.TheHoldingCompany'ertificateandtheHoldingCompanyBy-Lawsprovidethat,subjecttotherightsofholdersofHoldingCompanyPreferred,Stock,ifany,anydirectorservingontheHoldingCompanyBoardmayberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleastamajorityoftheVotingPower,votingtogetherasasingleclass.TheLILCOCertificateandtheLILCOBy-Lawshavenocomparableprovision,buttheLILCOBy-LawsdorequireDirectorstoretireattheAnnualMeetingofShareholdersintheyearfollowingtheyearin,whichheorshereacheshisorherseventy-secondbirthdayunlessauthorizedbytheBoardtocontinuetoserve.However,noDirectormayservebeyondtheyearfollowingtheyearinwhichheorshereachestheirseventy-fifthbirthday.UndertheNYBCL,unlessthecertificateofincorporationorby-lawsofacorporationprovidesotherwise,adirectormayberemovedonlyforcausebythevoteofamajorityofthevotescastatashareholdermeetingbytheholdersofsharesentitledtovotethereon.BoththeLILCOBy-LawsandtheHoldingCompanyCertificateprovidethatvacanciesonthe,BoardofDirectorsmaybefilledbytheremainingdirectors.TheLILCOCertificateprovidesthatincertaincircumstances,theholdersofpreferredstockorpreferencestockmayhavelimitedrightstoelecttwoadditionalDirectorsand,ifthereisavacancyamongthesetwoDirectors,theremainingDirectorhastheauthoritytoselectareplacement.MeetingsofSIrareimlders.TheHoldingCompanyCertificateandtheHoldingCompanyBy-LawsprovidethataspecialmeetingofshareholdersmaybecalledonlybytheHoldingCompanyBoardpursuanttoaresolutionapprovedbyamajorityoftheentireHoldingCompanyBoard.TheLILCOBy-Lawsalsoprovidethat89 aspecialmeetingofshareholdersmaybecalledbyamajorityoftheDirectorsofLILCO.Inaddition,theLILCOBy-LawsprovidethatsuchameetingmaybecalledbythePresidentofLILCO,andthatitisthePresident'sdutytocallsuchameetingwheneverrequestedtodosoinwritingbyshareholdersowningone-fourthoftheoutstandingsharesofstockofLILCOentitledtovoteatsuchmeetings.4AinendmentofCorporateCharterandBy-Laws.TheNYBCLprovidesthatanamendmenttoacorporation'scertificateofincorporationmaybeauthorizedbyvoteoftheboardofdirectors,followedbyavoteoftheholdersofamajorityofalloutstandingsharesentitledtovotethereonatameetingofshareholdersandtheby-lawsofacorporationmaybeamendedbya'oteoftheholdersofamajorityofalloutstandingsharesentitledtovoteintheelectionofanydirectorsofthecorporationor,ifsoprovidedinthecertificateofincorporationorby-laws,bytheboardofdirectorsbysuchvoteasmaybethereinspecified.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethattheaffirmativevoteoftheholdersofatleast80percentoftheVotingStockthenoutstanding,votingtogetherasasingleclass,willberequiredtochangeoradoptanyprovisioninconsistentwiththeprovisionsthereinrelatingtocallingofspecialmeetingsofshareholders,theelectionofdirectors,fillingofvacanciesontheHoldingCompanyBoard,removalofdirectorsandtheamendmentoftheHoldingCompanyBy-LawsandtheHoldingCompanyCertificate.TheLILCOCertificateprovidesthattheLILCOBoardofDirectorshasthepower,exceptasotherwiseprovidedbylaw,tomake,alter,amendorrepealtheLILCOBy-Laws.TheLILCO.By-LawsprovidethattheBy-Lawsmaybealtered,amendedorrescinded:(i)bytheshareholdersatanyregularorspecialmeetingbyvoteofamajorityofthesharesofstockissuedandoutstanding,providednoticeofsuchintentionbeincludedinthenoticeofmeeting,unlessotherwiseprovidedbylaw;or(ii)exceptwithregardtothesectionsconcerningquorumatshareholders'eetings,votingbyshareholders,dutiesandqualificationsofDirectorsandthenumberandmethodofelectionofDirectors,byvoteofamajorityoftheDirectorsofLILCOatanyregularorspecialmeeting,providedatleastthreedays'oticeofsuchintentionbegiventoeachmemberoftheBoard.ForinformationconcerningBrooklynUnion,see"SelectedInformationConcerningBrooklynUnion-'omparisonoftheHoldingCompany'sCertificateofIncorporationandBy-LawstoBrooklynUnion'sCertificateofIncorporationandBy-Laws."0JJicers.TheHoldingCompanyBy-Lawsprovidethat,effectiveasofthefirstanniversaryoftheconsummationoftheCombination,Dr.CatacosinosshallbeelectedChairmanoftheHoldingCompanyBoard,andChairmanoftheExecutiveCommitteeoftheHoldingCompanyBoardandMr.CatellshallbeelectedChiefExecutiveOfficer.oftheHoldingCompany.ThisBy-Lawmaybemodifiedonlybytheaffirmativevoteoftwo-thirdsoftheentireHoldingCompanyBoard.Anti-TakeoverStatutes,Section912oftheNYBCLprohibitsa"businesscombination"(asdefinedinSection912oftheNYBCL,generallyincludingmergers,salesandleasesofassets,issuancesofsecuritiesandsimilartransactions)byacorporationincorporatedunderthcNYBCLorasubsidiaryofsuchcorporationwithaninterestedshareholder(asdefinedinSection912oftheNYBCL,genemllythebeneficialownerof20percentormoreoftheNewYorkcorporation'svotingstock)withinfiveyearsafterthepersonorentitybecomesaninterestedshareholder,unless(i)priortothepersonorentitybecominganinterestedshareholder,thebusinesscombinationorthetransactionpursuanttowhichsuchpersonorentitybecameaninterestedshareholderhasbeenapprovedbysuchNewYorkcorporation'sboardofdirectors,or(ii)thebusinesscombinationisapprovedbytheholdersofamajorityofthevotingpowerofthecapitalstockofsuchNcwYorkcorporation,excludingsharesheldbytheinterestedshareholder,atameetingcalledforsuchpurposenoearlierthanfiveyearsaftersuchinterestedsliareholder's"stockacquisitiondate."Inaddition,Section912oftheNYBCLspecifiescertainminimumconsideration'thatmustbepaidinabusines'scombinationwithaninterestedshareholder.90 LinploynientAgreementwithWilliamJ.Catacosinos.PursuanttotheBrookfynUnion/LILCOAgreement,theHoldingCompanywillenterintoanemploymcntagreementwithDr.WilliamJ.CatacosinoseffectiveasoftheeffectivetimeoftheCombination(the"EffectiveTime"),providingforhimtoassumethepositionsofChairmanoftheBoard,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheHoldingCompanycommencingupontheEffectiveTimeandforhimtoserveasaconsultanttotheHoldingCompanyforafiveyearperiodcommencingonthefirstanniversaryoftheEffectiveTime,whichiswhenheceasestobeChiefExecutiveOfficerpursuanttothctermsoftheBrooklynUnion/LILCOAgreement.Underthisemploymentagreement,Dr.Catacosinosistoreceivecompensationontermstobemutuallyagreedupon,butnotlessthanwhathereceivedfromLILCOasofthedateoftheOriginalAgreement.Dr.CatacosinoswouldalsobeeligibletoreceiveincentivecompensationrelatedtoachievingthesynergiescontemplatedtoberealizedfromtheCombination.Inaddition,theBrooklynUnion/LILCOAgreementprovidesthattheemploymentagreemcntwithDr.Catacosinosisotherwisetocontaintermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefcxccutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.VestingofCertainBeneJitsforLILCO'sDirectorsand0+icers.UnderLILCO'sAnnualStockIncentiveCompensationPlan(the"StockPlan"),intheeventaStockPlanparticipant,'semploymentwithLILCOisterminatedfor,amongotherreasons,a"changeincontrol,"asdefinedintheStockPlan,suchparticipantshallbeentitledtoreceivepayment,assoonaspracticableafterthecloseoftheplanyearduringwhichsuchterminationofemploymentoccurs,ofaprorataportionofsuchparticipant'sLILCOCommonStockaward,ifany,forthecurrentplanyear.TheCombinationandtheLIPATransactionwilleachconstituteachangeincontrolforpurposesoftheStockPlan.UnderLILCO'sOfficers'ong-TermIncentivePlan(the"IncentivePlan"),awardsarepaidintwo,installmentseachofwhichiscontemplatedtobcmadeinsharesofLILCOCommonStock.Theawardsforeachperformanceperiod(initially1996-1997andthereaftereachconsecutivethree-yearperiod)aredividedintotwoequalportions:(i)afiftypercentvestedportion;and(ii)afiftypercentcontingentportion.Thccontingentportionissubjecttoamandatorydeferralofoneyearfromthedateofthepaymentofthcaward.IntheeventanIncentivePlanparticipant'semploymentwithLILCOisterminatedfor,amongotherreasons,a"changeincontrol,"asdefinedintheIncentivePlan,'suchparticipantsliallbeentitledtoreceivepayment,assoonaspracticableafterthecloseoftheperformanceperiodduringwhichsuchterminationofemploymentoccurs,of(i)theentirebalanceofsuchparticipant'scontingentaccountatthecloseoftheplanyearduringwhichterminationofemploymentoccursand(ii)apro-rataportionofsuchparticipant'saward,ifany,forthecurrentperformanceperiod,asdeterminedbyCompensationandManagementAppraisalCommitteeoftheLILCOBoardofDirectors.TheCombinationandtheLIPATransactionwilleachconstituteachangeincontrolforpurposesoftheIncentivePlan.UnderthetermsofLILCO'sDirectors'tockUnitRetainerPlan(the"RetainerPlan"),eachnon-employeedirectorofLILCOisrequiredtoapplyatleast50%ofhisorherannualretainertothepurch'aseofLILCOCommonStockunits.AllocationofLILCOCommonStockunitsundertheRetainerPlanaremadeautomaticallyonthe,dateduringeachfiscalquarteronwhichthequarterlyinstallmentoftheannualretainerispaid.UndertheRetainerPlan,thevalueoftheunitswhichwillbecreditedtoeachnon-employeeDirector'saccountonaquarterlybasiswillbedeterminedbydividingtheaggregateamountofcashcreditedtosuchaccountbytheclosingpricepershareofLILCOCommonStock,asreportedonaNewYorkStockExchangelistingofcompositetransactions,onthefirsttradingdayofthecalendarmonthinwhichtheparticipant'sretainerispaid.TheamountsaccumulatedpursuanttotheRetainerPlanwillbehelduntilsuchtimeas(i)aparticipantceasestoserveasaDirectororConsultingDirector;(ii)aparticipant'sdeath;or(iii)achangeincontrol,asdefinedintheRetainerPlan.TheCombinationandtheLIPATransactionwilleachconstituteachangeincontrolforpurposesofthcRetainerPlan.91 LILCOalsohasa'Retirement'lanforDirectors(the"RetirementPlan"),providingbenefitstoDirectorswhoarenotorwhohavenotbeenOfficersofLILCO.DirectorswhohaveservedinthatcapacityformorethanfiveyearsqualifyasparticipantsundertheRetirementPlan.TheRetirementPlanprovidesforamonthlybenefitequaltoone-twelfthofthehighestannualretainerpaidtoeachparticipant.Afullbenefitisavailableforparticipantswhoservefortcnyearswithareductionofone-sixtiethforeachmonthofservicelessthantenyears.UndertheRetirementPlan,paymentofbenefitsistobegin"whentheDirectorceasestoserveasaDirectororConsultingDirectororreachesage65,whicheverislater.TheRetirementPlanalsoprovidesthatintheeventofa"changeincontrol"(asdefinedintheRetirementPlan),thevalueofvestedbenefits'ouldbepayableimmediately.TheCombinationandtheLIPATransactionwilleachconstituteachangeincontrolforpurposesoftheRetirementPlan.TheBrooklynUnion/LILCOAgreementprovide'sthatattheEffectiveTime,eachshareofLILCOCommonStockheldunderthcRetainerPlan,theIncentivePlanandtheStockPlanwillbeautomatically.exchangedforthesamenumberofsharesofHoldingCompanyCommonStockforwhichoneshareof,LILCOCommonStockwasexchanged.LILCOChangeinConlrolSeverancePlan.LILCOhasenteredintoindividualemploymentagreementswitheachofitsofficerstoprovidethemwithemploymentsecurityandtominimizedistractionsresultingfrompersonaluncertaintiesandrisksofachangeincontrolofLILCO.Currently,theprincipalbenefitsundertheseagreements,payableiftheofficer'semploymentisterminatedforanyreason(includingvoluntaryresignation)withinthreeyearsofachangeincontrol(asdefinedintheseagreements),includingbyvirtueofanacquisitionofLILCO'sassetsorstock,priortoDecember31,1999,are:(i)severancepayequaltothreeyears'alary;(ii)accelerated'vestingandpaymentofthevalueofsupplementalretirementbenefitsatthetimeofachangeincontrol,whichareenhancedbythreeyearsofservice;and(iii)continuationoflife,medic'alanddentalinsuranceforaperiodofthreeyears.LILCOhascreatedatrusttosupportpaymentofitsobligations,butremainsprimarily,,liableforthecompensationandretirementbenefitspayabletotheofficers.Thetrustwillmakesuch,paymentsonlytotheextentthatLILCOdoesnot.TheCombinationascontemplatedintheBrooklynUnion/LILCOAgreementandtheLIPATransactionwilleachresultinachangeincontrol(asdefinedintheseagreements)andentitleeachofficer.tothebenefitspayableunderthctermsoftheemploymentagreementsifsuchofficer'employmentisterminatedforanyreason.LILCOhasalsoenteredintoindividualemploymentagreementswithcertainofitsofficers(notincludingDr.CatacosinosandMr.Flynn),effectiveJuly1,1997,pursuanttowhichsuchofficersarecmploycdforaoneyeartennandareentitledtoreceivearetentionbonusequalto20%ofthcgreaterofjobvalueorsalary,iftheyarestillemployedbyLILCOoritsaffiliatesatthcendofsuchtermorareterminatedwithoutcause(asdeterminedbytheChiefExecutiveOfficer),priortotheexpirationofsuchterm.TheseagreementshavebeenenteredintotoinducesuchofficerstocontinuetheiremploymcntdespitethesignificantproposedchangestoLILCOdescribedclsewhercinthisJointProxyStatement/Prospectus.UnderthetermsofanemploymentcontractdatedasofJanuary30,1984,asamended,Dr.CatacosinoshasagreedtoserveasCEOofLILCOuntilJanuary31,2002.Dr.Catacosinos'ontractprovidesfor,amongotherthings:(i)afive-yearconsultingperiodfollowingtheterminationofhisemployment(otherthan,exceptafterachangeincontrol,forcause);(ii)supplementaldisabilitybenefits;and(iii)vestedretirementbenefits,whichwillbebaseduponaformulathatconsidershisageatretirement;hishighestannualsalary,thehighestbonushehasreceivedandthelengthofhisservicetoLILCOincludingserviceasaDirector,employeeorconsultant.TheCombinationandtheLIPATransactionwilleachresultinachangeincontrolunderthetermsofDr.Catacosinos'mploymentcontract.SecurityOwnership'ofCertainBeneficialOwnersandManagementCnnentOwnershipofLILCOCommonStock.Thefollowingtableshowsthenumberofshares*ofLILCOCommonStockbeneficiallyowned,asofJunc23,1997,byeachDirector,certainOfficersandbyallDirectorsandOfficersasagroup.Thepercentageofsharesheldbyanyoneperson,orallDirectorsandOfficers asagroup,doesnotexceed1%ofalloutstandingsharesofLILCOCommonStock.TheaddressofeachoftheDirectorsandOfficersis:c/oLongIslandLightingHoldingCompany,175EastOldCountryRoad,Hicksville,NewYork11801.Number'fNa'me4Sbar'es~A.JamesBarnes.1,473GeorgeBugliarello-1,473RensoL.Caporali2,144WilliamJ.Catacosinos14,707PeterO.Crisp.973'amesT.Flynn.'.......................~.....................5,509VickiL.Fuller''........................................1,273LeonardP.Novello~.........................,.........................,..1,189AnthonyNozzolillo...................................1,301KatherineD.Ortega..'..........,....................',801BasilA.Paterson..s......~.2,025'ichardL.Schmalensee,.1,073'.GeorgeJ.Sideris.................................4,851JohnH.Talmage.......................*'......................,.........1,505EdwardJ.Youngling.............................2,446AllDirectorsandOfficersasagroup,includingthosenamedabove,atotalof33persons56,683~"ThettuniberofsliaresincludeswholesharesheldunderLILCO'sIrivestorCommonStockPlanandforMr.Talmageincludes287sharesheldorbeneficiallyownedbyaspouse,parentorchildforwhichbeneficialownershipisdisclaimed.Inaddition,thenumberofsharesshownforeachDirector,otherthanDr.CatacosinosandMr.Flynn,includes973LILCOCommonStockunits,whichdonotconferanyvotingrights,creditedpursuanttotheDirectorStockUnitRetainerPlan.ThefollowingtablesetsforthcertaininformationwithrespecttothesharesofLILCOPreferredStockandLILCOCommonStockownedbyeachpersonknownbyLILCOtobethebeneficialownerofmorethan5%ofsuchLILCOPreferredStockandLILCOCommonStock,asofMarch31,1997.TitleofClassNamesandAddressesPercentat;eOwnedofClassCommonStock'ommonStock16.6%12,141,50010.1%TheBrooklynUnionGasCompany23,981,964"OneMetroTechCenterBrooklyn,NY11201-3850CapitalGroupCompaniesInc.333SouthHopeStreetLosAngeles,CA90071*RepresentsthenumberofsharesthatmaybepurchasedpursuanttotheLILCOStockOptionAgreementattachedasAnnexBanddescribedinthisJointProxyStatement/Prospectus.See"TheStockOptionAgreemcn'ts."LILCOhasnotbeenadvised,norisitaware,ofanyadditionalsharestowhichanyonehastherighttoacquirebeneficialownership..LILCOisrequiredtoidentifyanyDirector,Officer,orpersonwhoownsmorethantenpercentofaclassofequitysecuritieswhofailedtotimelyfilewiththcSECarequiredreportrelatingtoownershipandchangesinownershipofLILCO'sequitysecurities.BasedoninformationprovidedtoLILCObysu'chpersons,allLILCO93 OfficersandDirectorsmadeallrequiredfilingsduringthefiscalyearendedDecember31,1996.Exceptasdescribedabove,LILCOdoesnotknowofanypersonbeneficiallyowningmorethan10%ofaclassofequitysecurities.CertainBusinessRelationshipsBetweenBrooklynUnionandLILCOInthenormalcourseofbusiness,LILCOpurchasesnaturalgas,paysgastransportationchargesandpurchasesco-generationpowerfromentitiesinwhichBrooklynUnionholdsanownershipinterest.BrooklynUnionpurchasesnaturalgasandpaysgastransportationchargestoentitiesinwhichLILCOhasanequityinterest,andentitiesinwhichBrooklynUnionhasanequityinterestsellelectricitytoandpurchasegastransportationservicesfromLILCO.Allsuchtransactionsareatarms'-lengthoratratesasrequiredbylaw.SELECTEDINFORMATIONCONCERNINGBROOKLYNUNIONRecommendationoftheBrooklynUnionBoardTheBrooklynUnionBoardbelievesthatthetermsoftheCombinationarefairto,andinthebestinterestsof,BrooklynUnionanditsshareholders.Accordingly,theBrooklynUnionBoard,hasunanimouslyadoptedtheBrooklynUnion/LILCOAgreement,andunanimouslyrecommendsitsadoptionbytheBrooklynUnionshareholders.TheBrooklynUnionBoardbelievesthattheCombinationrepresentasignificantstrategicopportunityforBrooklynUnion.TheBrooklynUnionBoardalsobelievesthattheLongIslandmarketpresentsexcellentopportunitiesforgrowthofthegasbusinessandtheprovisionofotherenergyrelatedservices.Thismarketisparticularlyattractivebecausethereisanextremely,lowpenetrationofgasasapercentageofthetotalenergyusageinthatregion.ThetermsoftheBrooklynUnion/LILCOAgreement,includingtheRatios,weretheresultofarm'-lengthnegotiationsbetweenBrooklynUnionandLILCO.InfixingtheRatiosinthenegotiationprocess,BrooklynUnionmanagementreliedtoalargeextentoncertainofthefinancialanalysesofMerrillLynchsummarizedbelowunder"OpinionofBrooklynUnion'sFinancialAdvisor."AlthoughMerrillLynchneithermadeanyrecommendationsnorexpressedanyopinion,toBrooklynUnionmanagementortheBrooklynUnionBoardduringsuchnegotiationsregardingtheRatios,MerrillLynchsubsequentlydelivereditswrittenopiniontotheBrooklynUnionBoardreferredtoinclause(vii)ofthefollowingparagraph.TheBrooklynUnionBoardconsultedwithitsfinancialadvisorandlegaladvisorsandmanagementofBrooklynUnion.Aftercarefulreviewandconsideration,theBrooklynUnionBoarddeterminedthattheCombinationisadesirabletransactionfromthestandpointoftheBrooklynUnioncommonshareholders.InreachingitsdecisiontoapprovetheBrooklynUnion/LILCOAgreement,andinadditiontothefactorsdescribedabove,theBrooklynUnionBoardconsideredthefollowingfactors:(i)thecurrentandhistoricalmarketpricesoftheBrooklynUnionCommonStockandtheLILCOCommonStock(includingthefactthatfromDecember1993toDecember1996,theratiooftheclosingpriceofLILCOCommonStocktotheclosingpriceofBrooklynUnionCommonStockhasrangedbetween0.542to0.942,andtheclosingpricesofBrooklynUnionCommonStockandLILCOCommonStockonDecember26,1996were$30.625and$19.125,respectively);(ii)informationconcerningthefinancialperformance,condition,businessoperationsandprospectsofeachofBrooklynUnionandLILCO;(iii)theeffectsoftheCombinationonBrooklynUnion'sshareholders,includingtheopportunitytoshareintheanticipatedbenefitsofownershipofthecombinedenterprise;(iv)theexpectedfederalincometaxtreatmentoftheCombinationasatax-freereorganizationtoBrooklynUnionshareholders(asdescribedunder"FederalIncomeTaxConsiderations-MaterialFederalIncomeTaxConsequences");(v)theimmediatereductioningasandelectricratestoreflectanticipatedsynergysavings,ascontemplatedbyBrooklynUnionandLILCO,andthebeliefthat,customerswillbenefitfromabroaderrangeofinnovativeenergyproductsandservices;(vi)thetermsoftheBrooklynUnion/LILCOAgreement,whichprovideforbalancedrepresentationsandwarranties,conditionstoclosingandrightstotermination;and(vii)theopinionofBrooklyn94 Union'sfinancialadvisor,MerrillLynch,totheeffectthat,asofthedatehereofandbasedupontheassumptionsmade,mattersconsideredandlimitsofreviewinconnectionwithsuchopinion,theBrooklynUnionRatioofoneshareofHoldingCompanyCommonStockforeachshareofBrooklynUnionC,'ommonStockwasfairtotheholdersofBrooklynUnionCommonStockfromafinancialpointofviewiftheLIPATransactionwereconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.880"sharesofHoldingCompanyCommonStock,andiftheLIPA'ransactionwerenotconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.803sharesofHoldingCompanyCommonStock.IndeterminingthattheCombinationisfairtoBrooklynUnion'sshareholders,theBrooklynUnionBoardconsideredtheabovefactorsasawholeanddidnotassignspecificorrelativeweightstothem.Intheview'oftheBrooklynUnionBoard,eachofthefactorslistedabovereinforceditsbeliefthatthecombinedentitywouldhaveexcellent'usinessprospectsgoingforwar'd.BecauseBrooklynUnion'sshareholderscollectivelywouldownapproximately34%(or32%iftheLIPATransactionisconsummated)ofthecombinedentity.baseduponthecapitalizationofthecompaniesasofDecember29,1996,thedateoftheOriginalAgreement,theprospectsofsuchentitywereanimportantfactortotheBrooklynUnionBoardindeterminingwhethertoapprovethetransaction.THEBROOKL'YNUNIONBOARD,BYAUNANIMOUSVOTE,HASADOPTEDTHEBROOKLYNUNION/LILCOAGREEMENT,BELIEVESTHATTHETERMSOFTHECOMBINATIONAREFAIRTOBROOKLYNUNION'S'HAREHOLDERSANDUNANIMOUSLY,RECOMMENDSTHATTHESHAREHOLDERSOFBROOKLYNUNIONVOTETOADOPTTHEBROOKLYNUNION/LILCOAGREEMENT.InconsideringtherecommendationoftheBrooklynUnionBoardwithrespecttotheBrooklynUnion/LILCOAgreement,shareholdersshouldbeawarethatcertainmembersofBrooklynUnion'smanagementandtheBrooklynUnionBoardhavecertaininterestsintheCombinationthataredifferentfrom,orinadditionto,theinterestsofshareholdersofBrooklynUniongenerallyandthatcouldpotentiallyrepresentconflictsofinterest.TheBrooklynUnionBoardwasawareoftheseinterestsandconsideredthem,amongothermatters,inadoptingtheBrooklynUnion/LILCOAgreement.See"TheBrooklynUnion/LILCOCombination-PotentialConflictsofInterestsofCertainPersonsintheCombination."-0OpinionofBrooklynUnion'sFinancialAdvisorEOnDecember29,1996,MerrillLynchdelivereditsoralopinion,whichwassubsequentlyconfirmedinawrittenopiniondatedasofsuchdate,totheBrooklynUnionBoardtotheeffectthat,asofsuchdate,andbasedupontheassumptionsmade,mattersconsideredandlimitsofreviewsctforthinsuchopinion,theBrooklynUnionRatioofoneshareof,HoldingCompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStockfromafinancialpointofviewifthdLIPATransactionwerenotconsummated,underwhichcircumstances'eachshareofLILCOCommonStockwouldbeexchangedfor0.803sharesofHoldingCompanyCommonStock.InconnectionwiththeapprovalbytheBrooklynUnionBoardoftheBrooklyn,Union/LILCOAgreement,MerrillLynchdelivereditsopiniontotheBrooklynUnionBoardonJune26,1997totheeffectthat,asofsuchdate,andbasedupontheassumptionsmade,mattersconsideredandlimitsofreviewsetforthinsuchopinion,theBrooklynUnionRatioofoneshareofHoldingCompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStock,fromafinancialpointofviewiftheLIPATransactionwereconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.880sharesofHoldingCompanyCommonStock.Inaddition,MerrillLynchdelivereditswrittenopiniontotheBrooklynUnionBoarddatedasofthedateofthisJointProxyStatement/Prospectus,totheeffectthat,asofsuchdate,andbasedupontheassumptionsmade,mattersconsideredandlimitsofreviewsetforthinsuchopinion,theBrooklynUnionRatioofoneshareofHolding'CompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStockfromafinancialpointofviewiftheLIPATransactionwereconsummated,underwhichcircumstanceseach'hareofLILCOCommonStockwouldbeexchangedfor0.880sharesofHoldingCompanyCommonStock,andiftheLIPATransactionwerenotconsummated,underwhich95 circumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.803sharesofHoldingCompanyCommonStock.Referenceshereintothe"MerrillLynchOpinion"refertothewrittenopinion,ofMerrillLynchdatedasofthedateofthisJointProxyStatement/Prospectus.AcopyoftheMerrillLynchOpinion,whichsetsforththeassumptionsmade,mattersconsideredandcertainlimitationsonthescopeofreviewundertakenby,MerrillLynch,isattachedasAnnexEtothisJointProxyStatement/Prospectus,BrooklynUnionshareholdersareurgedtoreadsuchopinioninitsentirety.TheMerrillLynchOpinionisdirectedonlytothefairnessoftheBrooklynUnionRatiofromafinancialpointofv'iew,anddoesnotconstitutearecommendationtoanyBrooklynUnionshareholderastohowsuchshareholdershouldvoteattheBrooklynUnionMeeting.ThesummaryoftheMerrillLynchOpinionsetforthinthisJointProxyStatement/Prospectusisqualifiedinitsentiretybyreferencetothefulltextofsuchopinion.InarrivingattheMenillLynchOpinion,MerrillLynch,among'otherthings:(i)reviewedBrooklynUnion'sAnnualReports,Forms10-KandrelatedfinancialinformationforthethreefiscalyearsendedSeptember30,1996andBrooklynUnion'sForms10-QandtherelatedunauditedfinancialinformationforthequarterlyperiodsendingDecember31,1996andMarch31',1997;(ii)reviewedLILCO'sAnnualReports,Forms10-KandrelatedfinancialinformationforthethreefiscalyearsendedDecember31,1996andLILCO's'Form10-QandtherelatedunauditedfinancialinformationforthequarterlyperiodendingMarch31,1997;(iii)reviewed.certaininformation,includingfinancialforecasts,relatingtothebusiness,earnings,cashflow,assetsandprospectsofBrooklynUnionandLILCO,furnishedtoMerrillLynchbyBrooklynUnionandLILCO;(iv)conducteddiscussionswithmembersofseniormanagementofBrooklynUnionandLILCOconcerningtheirrespectivebusinesses,regulatoryenvironments,prospectsandstrategicobjectives;(v)reviewedthehistoricalmarketpricesandtradingactivityforBrooklynUnionCommonStockandLILCOCommonStockandcomparedthemwiththatofcertainpubliclytradedcompanieswhichMerrillLynchdeemedtobcreasonablysimilartoBrooklynUnionandLILCO,respectively;(vi)comparedtheresultsofoperationsofBrooklynUnionandLILCOwiththatofcertaincompanieswhichMerrillLynchdeemedtobereasonablysimilartoBrooklynUnionandLILCO,respectively;(vii)comparedtheproposedfinancialtermsofthetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementwiththefinancialtermsofcertainothermergersandacquisitionswhichMerrillLynchdeemedtoberelevant;(viii)consideredthepotentialproformaeffectoftheCombination,includingonBrooklynUnion'scapitalizationratiosandearnings,dividendsandbookvaluepershare;(ix)reviewedtheBrooklynUnion/LILCOAgreement;(x)reviewedtheLIPAAgreement;and(xi)reviewedsuchotherfinancialstudiesandanalysesandperformedsuchotherinvestigationsandtookintoaccountsuchothermattersasMerrillLynchdeemednecessary,includingMerrillLynch'sassessmentofgeneraleconomic,marketandmonetaryconditions.pfInpreparingtheMerrillLynchOpinion,JvierrillLynchassumedwiththeconsentoftheBrooklynUnionBoardtliattheLIPATransaction,ifconsummated,wouldbeconsummatedonthetermscontainedintheLIPAAgreemcnt.InpreparingtheMerrillLynchOpinion,MerrillLynchalsoassumedandreliedontheaccuracyandcompletenessofallinformationsuppliedorotherwisemadeavailabletoitorpubliclyavailableordiscussed,withorreviewedbyorforit,andMerrillLynchdidnotassumeanyresponsibilityforindependentlyverifyingsuchinformationorundertakinganindependentevaluationorappraisalofanyoftheassetsorliabilitiesofBrooklynUnionorLILCO.Inaddition,MerrillLynchdidnotconductanyphysicalinspectionofthepropertiesorfacilitiesofBrooklynUnionorLILCO.WithrespecttothefinancialforecastsfurnishedtoordiscussedwithMerrillLynchbyBrooklynUnionandLILCO,MerrillLynchassumedthattheyhadbeenreasonablypreparedandreflectedthebestcurrentlyavailableestimatesandjudgmentsofBrooklynUnion'sorLILCO'smanagementasto'theexpectedfuturefinancialperformanceofBrooklynUnionorLILCO,asthecasemaybe,andastotheexpectedfutureprojcctcdoutcomesofvariouslegal,regulatoryandothercontingencies.Inthatregard,LILCO'sfinancialforecastsforthecaseinwhichLILCO,retainsownershipofitselectrictr'ansmissionanddistributionsystem,substantiallyallofitselectricregulatoryassetsandcertainotherinterestsandtheLIPATransactionisnotconsummated,assumed,amongotherthings(i)thatLILCOwillbesubjecttonoreductioninelectricratesforthefive-yearperiodendingDecember31,2002,(ii)thatLILCOwillfullyrecoverinitscurrentandfutureelectricratesallofitscostsreferredtointheNotestoFinanciaLStatementsofLILCOforthe,yearended96 December31,1996,associatedwiththetransferoftheShorehamNuclearPowerStationtoLIPAanddecommissioningthereof,ontermsnolessfavorabletoLILCOthanthetermscurrentlyineffect,and(iii)thattherewillbenoadversechangestoLILCOingeneralcompetitiveconditionsforthetransmissionandsaleofelectricity'ntheareasservicedbyLILCOthroughtheconstructionofnewtransmissionlinestoLongIslandorotherwise.MerrillLynchassumedthattheCombinationwillbeaccountedforasapoolingofinterestsinthecasewheretheLIPATransactionisnotconsummatedandtha'ttheMergerwillqualifyasatax-freereorganizationforU.S.federalincometaxpurposes.TheMerrillLynchOpinionwasnecessarilybaseduponmarket,economicandotherconditionsastheyexistedandcouldbeevaluatedasofthedateofsuchopinion.MerrillLyhchassumedthatinthecourseofobtainingthenecessaryregulatoryorotherconsentsorapprovalsfortheCombinationandtheLIPATransaction,norestrictions,includinganydivestiturerequirementsoramendmentsormodifications,willbeimposedthat'illhaveamaterialadverseeffectonthecontemplatedbenefitsoftheCombinationortheLIPATransaction.TheMerrillLynchOpinionwasaddressedtotheBrooklynUnionBoardanddoesnotconstitutearecommendationtoanyshareholdersastohowsuchshareholdersshouldvoteontlieproposedCombination.InconnectionwiththepreparationoftheMerrillLynchOpinion,MerrillLynchwasnotauthorizedbyBrooklynUnionortheBrooklynUnionBoardtosolicit,norhasMerrillLynchsolicited,third-partyindicationsofinterestfortheacquisitionofalloranypartofBrooklynUnion.Inaddition,MerrillLynchexpressednoopinionasto'whatthevalueoftheHoldingCompanyCommonStockactuallywillbewhenissuedtotheholdersofsharesoftheBrooklynUnionCommonStockuponconsummationoftheCombinationorwhatthevalueoftheBrooklynUnionCommonStockorLILCOCommonStockwillbebetweenthedateofsuchopinionandtheconsummationoftheCombination.NootherlimitationswereimposedbyBrooklynUniononMerrillLynchwithrespecttotheinvestigationsmadeorproceduresfollowedbyMerrillLynchinrenderingitsopinion.ThefollowingisasummaryofthematerialfinancialandcomparativeanalysesperformedbyMerrillLynchinarrivingattheMerrillLynchopiniondeliveredtotheBrooklynUnionBoardonDecember29,1996.TradingRatioAnalysis.MerrillLynchreviewedtheperformanceofthedailyclosingpricespershareofLILCOCommonStockandBrooklynUnionCommonStockinrelationtoeachotherfortfiethree-yearperiodended'onDecember19,1996.MerrillLynchalsoreviewedthehistoricali'atiosofsuchdailyclosingpricespershareofLILCOCommonStocktothoseofBrooklynUnionCommonS(ock(the"HistoricalTradingRatios")fortheperiodfromDecember19,1993throughDecember19,1996,a'ndthemeanofsuchHistoricalTradingRatiosfortheone-year,two-yearandthree-yearperiodsendedonDecember19,1996,andcomparedsuchHistoricalTradingRatiostotheOriginalRatioof0.803andtheLIPARatioof0.880.Thisanalysisshowedthatduring'thethree-yearperiodendedonDecember19,1996,themaximumHistoricalTradingRatiowas0.942,theminimumHistoricalTradingRatiowas0.542,andthemeanHistoricalTradingRatiosfortheone-year,two-yearandthree-yearperiodsendedonDecember19,1996were0.635,0.657and0.705,respectively.Co>reparablePubliclyTradedCompanyAualysis.,Usingpubliclyavailableinformation,MerrillLynchcomparedcertainfinancialandoperatinginformationandratios(describedbelow)forBrooklynUnionandLILCO,respectively,withthecorrespondingfinancialandoperatinginformationandratiosforseparategroupsofpubliclytradedcompaniesthatMerrillLynchdeemedtobereasonablycomparable'toBrooklynUnionandLILCO,respectively.ThecompaniesincludedintheBrooklynUnioncomparablecompanyanalyseswere:AGLResources,Inc.,LacledeGasCompany,NationalFuelGasCompany,NewJerseyResourcesCorporation,PeoplesEnergyCorporationandWashingtonGasLightCompany,(collectively,the"BrooklynUnionComparables"),ThecompaniesincludedintheLILCOanalyseswere:BostonEdisonCompany,ConsolidatedEdisonCompanyofNewYork,Inc.,NewYorkStateElectric&GasCorporationandPublicServiceEnterpriseGroupIncorporated(collectively,the"LILCOComparables").MerrillLynchderivedanestimatedvaluationrangeforBrooklynUnionbycomparing:(i)currenttradingvaluetoestimated1997earningspersharefortheBrooklynUnionComparables,whichestimateswereobtainedfromInstitutionalBrokersEstimateSystemandrangedfrom13.0xto15.0x,comparedtoamultipleof14.4xforBrooklynUnionCommonStockbaseduponestimatesfromInstitutionalBrokersEstimateSystem;(ii)current97 tradingvaluetobookvaluefortheBrooklynUnionComparables,whichrangedfrom1.50xto2.00x,comparedtoamultipleof1.69xforBrooklynUnionCommonStock;and(iii)thedividendyieldratiofortheBrooklynUnionComparablcs,whichrangedfrom4.0%to6.0%,comparedtothedividendyieldratioof4.6%forBrooklynUnionCommonStock.MerrillLynchderivedanestimatedvaluationrangeforLILCObycomparing:(i)currenttradingvaluetoestimated1997earningspersharefortheLILCOComparables,whichestimateswereobtainedfromInstitutionalBrokersEstimateSystem,whichrangedfrom8.0xto10.5x,comparedtoamultipleof8.8xforLILCOCommonStockbaseduponestimatesobtainedfromInstitutionalBrokersEstimateSystem;(ii)currenttradingvaluetobookvalue,fortheLILCOComparables,whichrangedfrom0.80xto1.20x,comparedtoamultipleof0.91xforLILCOCommonStock;and(iii)thedividendyieldratiofortheLILCO,Comparables,whichrangedfrom7%to9%,comparedtothedividendyieldratioof9.3%forLILCO'CommonStock.BasedupontheestimatedvaluationrangesofBrooklynUnionandLILCOinsuchanalyses,MemllLynchcalculatedanimpliedexchangeratioofashareofLILCOCommonStocktoashareoFBrooklynUnionCommonStockrangingfrom0361to1.052,comparedtotheOriginalRatioof0.803;NopubliccompanyutilizedasacomparisonintheanalysesdescribedaboveisidenticaltoBrooklynUnionor'LILCO.Accordingly,ananalysisofpubliclytradedcomparablecompaniesisnotmathematical;ratheritinvolvescomplexconsiderationsandjudgmentsconcerningdifferencesinfinancialandoperatingcharacteristicsofthecomparablecompaniesandotherfactorsthatcouldaffectthepublictradingvalueofthecomparablecompaniesorcompanytowhichtheyarebeingcompared.MergerTransactionAnalysis.Usingpubliclyavailableinformation,MerrillLynchreviewedtwelvetransactionsannouncedbetweenJune28,1994andOctober14,1996,involvingthemergerofselectedelectricutilitycompanies(the"ElectricMergerTransactions"),andfourtransactionsannouncedbetweenOctober18,1995andOctober,14,1996,involvingthemergerofgasdistributioncompanies(the"GasMergerTransactions").TheElectricMergerTransactionsandthedateeachtransactionwasannouncedwercasfollows:EnovaCorporation/PacificEnterprisesInc.(October1996),CenteriorEnergyCorporation/OhioEdisonCompany(September1996),AtlanticEnergy,Inc./DelmarvaPower&LightCompany(August1996),PortlandGeneralCorporation/EnronCorp.(July1996),UtiliCorpUnitedInc./KansasCityPower&LightConipany(January1996),IESIndustriesInc./InterstatePowerCompany/WPLHoldings,Inc.(November1/95),PotomacElectricPowerCompany/BaltimoreGasandElectricCompany(September1995),SouthwesternPublicServiceCompany/PublicServiceCompanyofColorado(August1995),CIPSCOIncorporated/UnionElectricCompany(August1995),NorthernStatesPowerCompany/WisconsinEnergyCorporation(May1995),Iowa-IllinoisGasandElectricCompany/MidwestResourcesInc.(July1994)andSierraPacificResources/WashingtonWaterPowerCompany(June1994).TheGasMergerTransactionsandthe,dateeachtransactionwasannouncedwereasfollows:PacificEnterprises/EnovaCorporation(October1996),UnitedCities.GasCompany/AtmosEnergyCorporation(July1996),NorAmEnergyCorp./HoustonIndustriesIncorporated(August1996)andWashingtonEnergyCompanyInc./PugetSoundPower&LightCompany(October1995).MerrillLynchderivedanestimatedvaluationrangeforBrooklynUnionbycomparingtheoffervalue(definedastheequityvaluedeterminedusingmarketpricespriortotheannouncementdate)ineachoftheGasMergerTransactionsasamultipleof(i)netincomeoftheacquiredcompanyforthelatesttwelvemonths,whichrangedfrom18.0xto22.0x,and(ii)bookvalueoftheacquiredcompany,whichrangedfrom1.75xto2.25x.MerrillLynchalsoderivedanestimatedvaluationrangeforLILCObycomparingtheoffervalueineachoftheElectricMergerTransactionsasamultipleof(i)latesttwelvemonthearningspershareoftheacquiredcompany,whichrangedfrom9.0xto13.0x,and(ii)bookvalueoftheacquiredcompany,whichrangedfrom1.00xto1.50x.nchmon~BasedupontheestimatedvaluationsofBrooklynUnionandLILCOinsuchanalyses,MerrillLycalculatedanimpliedexchangeratioofashareofLILCOCommonStocktoashareofBrooklynUnion.ComStockrangingfrom0.451to0.988,comparedtotheOriginalRatioof0.803.98 tNoneofthebusinesscombinationsutilizedasacomparisonintheanalysesdescribedaboveisidenticaltotheproposedCombination.Accordingly,ananalysisofcomparablebusinesscombinationsisnotmathematical;ratheritinvolvescomplexconsiderationsandjudgmentsconcerningdifferences:infinancialandoperatingcharacteristicsofthecomparablecompaniesandotherfactorsthatcouldaffectthepublictradingvalueofthecomparablecompaniesorcompanytowhichtheyarebeingcompared,DiscountedCashFloivAnalysis.MerrillLynchderivedestimatedvaluationrangesforBrooklynUnionandLILCObyperformingdiscountedcashflow("DCF')analyses.InthecaseofBrooklynUnion,theDCFwascalculatedassumingdiscountratesrangingfrom8.0%to9.0%,andwascomprisedofthesumofthepresentvalueof(i)theprojectedunleveredfreecashfiowsforyears1998to2002estimatedbyBrooklynUnion,and(ii)theyear2002terminalvaluebasedupon(a)arangeofmultiplesfrom12.0xto15.0x.ofprojectedyear2002netincome,and(b)arangeofmultiplesfrom1.60xto2.00xofprojectedyear2002bookvalue.InthecaseofLILCO,theDCFwascalculatedassumingdiscountratesrangingfrom7.75%to8.75%,andwascomprisedofthesumofthepresentvalueof(i)theprojectedunleveredfreecashflowsforyears1998to2002estimatedbyLILCO,and(ii)theyear2002terminalvaluebasedupon(a)arangeofmultiplesfrom8.5xto10.5xofprojectedyear2002netincome,and(b)arangeofmultiplesfrom0.80xto1.20xofprojectedyear2002bookvalue.BasedupontheestimatedvaluationrangesofBrooklynUnionandLILCOsetforthabove,MerrillLynchcalculatedanimpliedexchangeratioofashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfrom0.553to0.924,comparedtotheOriginalRatioof0.803.ConfribltionAnalysis.MemllLynchcalculatedthecontributionofeachofBrooklynUnionandLILCOtotheproformacombinedcompanywithrespectto(i)earningspercommonshare,(ii)dividendspercommonIshareand(iii)bookvaluepercommonshare,ineachcaseforthefiscalyears1993through1995("HistoricalPeriod"),andforthefiscalyears1996throu'gh2000(the"ProjectedPeriod"),forBrooklynUnionusingreportedresultsforfiscalyear1996andcertainprojectionsprovidedbythemanagementofBrooklynUnion,andforLILCOusingcertainprojectionsforfiscalyears1996and1997obtainedfromFirstCallCorporationandforfiscalyears1998through2000providedbyLILCOmanagement.TheanalysisofearningspercommonshareyieldedanimpliedexchangeratioforashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfrom1.283xto1.105xduringtheHistoricalPeriod,and1.108xto.932xfortheProjectedPeriod.TheanalysisofdividendpercommonshareyieldedanimpliedexchangeratioforashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfrom1.333xto1.281xfortheHistoricalPeriod,and1.254xto1.156xfortheProjectedPeriod.TheanalysisofbookvaluepercommonshareyieldedanimpliedexchangeratioforashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfrom1.278xto1.210xfortheHistoricalPeriod,and1.177xto1.110xfortheProjectedPeriod.Basedupontheestimatedimpliedratiosinsuchanalyses,MerrillLynchcalculatedimpliedexchangeratiosofashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfrom1.105to1.333duringtheHistoricalPeriod,and0.932to1.054fortheProjectedPeriod,comparedtotheOriginalRatioof0.803.ThefollowirigisasummaryofthematerialfinancialandcomparativeanalysesperformedbyMerrillLynchinconnectionwiththepreparationoftheopinionofMerrillLynchdatedasofJune26,1997.ContributionAnalysis.MerrillLynchcalculatedthecontributionofeachofBrooklynUnionandLILCOtotheproformacombinedcompanyassumingthattheLIPATransactionisconsummatedbaseduponvaluations(i)forBrooklynUnionusingestimated1997earningsandmultiplesrangingfrom13.0xto14.0x,(ii)forLILCO'sgasdistributionbusinessusingestimated1997earningsandmultiplesrangingfrom13.0xto14.0x,l(iii)forLILCO'selectricgenerationbusinessusingLILCO'sgeneratingcapacityandmultiplesrangingfrom$200to'$250perkilowattcapacity,(iv)forLILCO'smanagementcontractwithLIPAbaseduponthepresentvalueofthefeesandotherpaymentsprojectedbyLILCO'smanagementtobereceivedbyLILCOduringthe99 termofthecontract;and(v)thehypotheticalcashproceedstothecombinedcompany(netofestimatedtransaction-relatedexpensesandliabilitiesbutincludingthepresentvalueofcertaintax-relatedbenefits)ofapproximately$1.96billion.ThisanalysisshowedthatBrooklynUnionshareholderswouldcontributeapproximately30%ofthetotalaggregatevalueofthecombinedcompanyandwouldownapproximately32%ofthecombinedcompanyonaproformabasis.ImpliedAcquisitionVair<ationAnalysis.MerrillLynchderivedanestimatedrangeofimpliedmultiplesforLILCO'selectricgenerationbusinessbysubtractingfromtheaggregateequityvaluationoftheBrooklynUnionCommonStocktobeexchangedintheCombination(usingtheLIPARatioof0.880andanassumedpricepershareofBrooklynUnionCommonStockof$29.00)(i)thehypotheticalcashproceeds'othecombinedcompany(netofestimatedtransaction-relatedexpensesandliabilitiesbutincludingthepresentvalueofcertaintax-relatedbenefits)ofapproximately$1.96billion,(ii)thepresentvalueofthefeesandotherpaymentsprojectedbyLILCO'smanagementtobereceivedbyLILCOunderLILCO'smanagementcontractwithLIPAduringthetermofsuchcontract,and(iii)multiplesforLILCO'sgasdistributionbusinessrangingfrom14.0xto16.0xestimated1997netincomeprovidedbyLILCO.ThisanalysisyieldedimpliedmultiplesofnetincomeforLILCO'selectricgenerationbusinessrangingfrom2.2xto5.5x.ThesummarysetforthabovedoesnotpurporttobeacompletedescriptionoftheanalysesperformedbyMerrillLynch,althoughitisasummaryofthematerialfinancialandcomparativeanalysesperformedbyMerrillLynchinarrivingattheMerrillLynchOpinion.Arrivingatafairnessopinionisacomplexprocessnotnecessarilysusceptibletopartialanalysisorsummarydescription.MerrillLynchbelievesthatitsanalysesmustbeconsideredasawholeandthatselectingportionsofitsanalysesandofthefactorsconsideredbyit,withoutconsideringallsuchfactors'ndanalyses,couldcreateamisleadingviewoftheprocessesunderlyingitsopinion.MerrillLynchdidnotassignrelativeweightstoanyofitsanalysesinpreparingitsopinion.ThemattersconsideredbyMerrillLynchinitsanalysesarebasedonnumerousmacroeconomic,operatingandfinancialassumptionswithrespecttoindustryperformance,generalbusinessandeconomicconditionsandothermatters,manyofwhicharebeyondBrooklynUnion'sorLILCO'scontrolandinvolvetheapplication'ofcomplexmethodologiesandeducatedjudgment.AnyestimatesincorporatedintheanalysesperformedbyMerrillLyncharenotnecessarilyindicativeofactualpastorfutureresultsorvalues,whichmaybesignificantlymoreorlessfavorablethansuchestimates.Estimatedvaluesdonotpurporttobeappraisalsanddonotnecessarilyreflectthepricesatwhichbusinessesorcompaniesmaybesoldinthefuture,andsuchestimatesareinherentlysubjecttouncertainty;TheBrooklynUnionBoardselectedMerrillLynchtoactasitsfinancialadvisorbecauseofMerrillLynch'sreputationasaninternationallyrecognizedinvestmentbankingfirmwithsubstantialexperienceintransactionssimilartotheCombinationandbecauseitisfamiliarwithBrooklynUnionanditsbusiness.Aspartofitsinvestmentbankingbusiness,MerrillLynchisco'ntinuallyengag'edinthevaluationofbusinessesandtheirsecuritiesinconnectionwithmergersandacquisitions.4EPursuanttoaletteragreementdatedJanuaryI,1995,asamendedasofOctober12,1995andasofMarch14,1997,BrooklynUnionhasagreedtopayMerrillLynch(i)afeeof$1,000,000onMarch14,1997againstwhichceitainretainerfeeswerecredited,(ii)anadditionalfeeof$1,500,000uponapprovaloftheCombinationbyholdersoftheBrooklynUnionCommonStock,(iii)anadditionalfeeof$9,000,000uponclosingoftheCombination,and(iv)uponreceiptbyBrooklynUnionofanybreak-uportoppingfeeor,reimbursementofexpensesintheeventtheCombinationisnotconsummated,anadditionalfeeintheamountoftenpercent(10%)ofanamountequaltoanybreak-uportoppingfeereceivedbyBrooklynUnionplusanyexpensereimbursementreceivedbyBrooklynUnion,lessout-of-pocketexpensespaidbyBrooklynUniontothirdpartiesinconnectionwiththeCombination,providedthatanyadditionalfeepaidpursuanttoclauses(i)or(ii)aboveshallbecreditedagainstthefeespayablepursuanttoclauses(iii)or(iv)above.Inaddition,BrooklynUnionhasagreedtoreimburseMerrillLynchforitsreasonable.expenses(includingthereasoriablefeesanddisbursementsofitslegalcounsel)andtoindemnifyMerrillLynchandcertainrelatedpartiesfromandagainstcertainliabilities,includingliabilitiesunderthefederalsecuritieslaws;ajsingoutofitsengagement.BrooklynUnionhasalsoagreedthat100 MerrillLynchand/oranyofitsaffiliatesmayunderwriteorplaceanysecuritiesofanyentity,including,withoutlimitation,LIPA,issuedinconnectionwithorasaresultoftheLIPATransaction.MerrillLynchhas,inthepast,providedfinancialadvisoryandfinancingservicestoBrooklynUnionandfinancingservicestoLILCOandhasreceivedfeesfortherenderingofsuchservices.Inaddition,intheordinarycourseofMerrillLynch'sbusiness,MerrillLynchmayactivelytradethesecuritiesofBrooklynUnionorLILCOforitsown'accountandfortheaccountsofitscustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.1PotentialConflictsofInterestsofCertainPersonsintheCombinationandtheLIPATransactionIlmploynientAgreenientwitIsRobertB.Catell.PursuanttotheBrooklynUnion/LILCOAgreement,iftheBrooklynUnionShareExchangeisconsummated,theHoldingCompanywillenterintoanemploymentagreeinentwithMr.RobertB.Catelleffe'ctiveupontheEffectiveTimeprovidingforhimtoassumethepositionsofPresidentandChiefOperatingOfficercommencingupontheEffective.TimeandforhimtoserveasChiefExecutiveOfficeroftheHoldingCompanyforafouryearperiodcommencingonthefirstanniversaryoftheEffectiveTime.Underthisemploymentagreement,Mr.Catellistoreceivecompensationontermstobemutuallyagreedupon,butnotlessthanwhathereceivedfromBrooklynUnionasofthedateoftheOriginalAgreement.Mr.Catellwouldalsobeeligibletoreceiveincentivecompensationrelatedtoachievin'gthesynergiescontemplatedtoberealized'fromtheCombination.Inaddition,theBrooklynUnion/LILCOAgreementprovidesthattheemploymentagreementwithMr.Catellisothevvisetocontaintermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.VestingofCertainBenefitsforBrooklynUnion'sDirectorsandOfficers.UnderBrooklynUnion'sLong-TermPerformanceIncentiveCompensationPlanforofficersandcertainkeyemployeesofBrooklynUnion(the"PerformancePlan"),upona"changeofcontrol,"asdefinedinthePerformancePlan,alloptionstopurchasesharesofBrooklynUnionCommonStockgrantedunderthePerfonnancePlanwillbecomeimmediatelyexercisableandremainexercisablefortheremainderoftheiroriginalterm.ThePerformancePlanalsoprovidesforawardsofperformariceshares,whichentitletheemployeetoreceiveeitheranumberofsharesofBrooklynUnionCommonStockbaseduponachievementofperformancegoalsoveraperfonnanceperiodorapaymentincashinlieuofsuchshares.Underthetermsof,tliePerformancePlan,upona"changeofcontrol,"theperformancegoalsforallsuchperformanceshareswillbe.deemedtohavebeenmetandtheemployeewillreceiveeithertheawardedperformancesharesortheequivalentincash,proratedbasedontimeelapsedduringtheperformanceperiod.TheCombinationwillconstituteachangeofcontrolforthepurposesofthePerformancePlan.TheBrooklyn'nion/LILCOAgreementprovidesthatupontheEffectiveTime,eachunexpiredandunexercisedoptiontopurchasesharesofBrooklynUnionCommonStockunderthePerformancePlan,whethervestedorunvested,willbeautomaticallyconvertedinto,anoptiontopurchasethesamenumberofsharesofHoldingCompanyCommonStockatthesamepershareprice.AsofJune23,1997,optionstopurchase540,500sharesofBrooklynUnionCommonStockand13,000perfonnanceshareshavebeengrantedtoBrooklynUnionexecutiveofficersasagroupunderthe.PerformancePlan(including155,000optionsand4,000performancesharestoMr.Catell,theChairmanandChiefExecutiveOfficer;92,000optionsand2,300performancesharestoCraigG.Matthews,PresidentandChiefOperatingOfficer;56,000optionsand2,300performancesharestoHelmutW.Peter,ViceChairman;42,000optionsand1,100performancesharestoVincentD.Enright,SeniorVice,PresidentandChiefFinancialOfficer;and25,000optionsand550performancesharestoAnthonyJ.,DiBrita,Senior,VicePresident).SuchoptionsweregrantedonNovember15,1995andNovember20,1996andvestinequal.installmentsoverthreeyearperiodsfromtheapplicablegrantdate.Allsuchperformancesharesv'estoverathreeyearperiodendingSeptember30,1998,andtheactualnumberofperformancesharesearnediscontingentuponachievingcertainperformancetargets.UponconsummationoftheCombination,allsuchoptionswillbevestedandexercisableforthesamenumberofshares101 ofHoldingCompanyCommonStockatanexercisepricerangingfrom$27.00to$30.50per,shareandtheperformancetargetsforallsuchperformancesliareswillbedeemedtohavebeenmetandpaymentforaproratedportionofsuchperformanceshareswillbemadeassoonaspracticableafterconsummationoftheCombination.BrooklynUnionChangeofControlSeverancePlan.UndertheBrooklynUnionSeniorExecutiveChangeofControlSeverancePlan(the"SeverancePlan"),participantsareentitledtoreceivecertainseverancebenefitsiftheiremploymentisterminatedundercertaincircumstanceswithinthreeyearsafteratransactionthatmeetsthedefinitionof"changeofcontrol"underthetermsoftheSeverancePlan.Aterminationbytheemployerwithout"cause"(asdefinedintheSeverancePlan)orbytheparticipantfor"goodreason"(asdefinedintheSeverancePlan,andincludingasignificantdiminutionofresponsibilities,anassignmenttoinappropriateduties,amaterialreductionincompensationorbenefits,oratransferofmorethan50miles),withinthelaterof(i)theendof15monthsafterthe"changeofcontrol"or(ii)90daysafterthe"goodreason"eventoccurs,willresultinthepaymentofbenefitsundertheSeverancePlan.Aparticipantwhobecomesentitledtoseverancebenefitswillreceivethefollowing:alumpsumcashpaymentofsalary,previouslydeferredcompensationandaccruedvacationpaythroughthedateofterminationtotheextentnotalreadypaid,aproratabonusfortheyearoftermination,andtheparticipant'sbasesalaryandbonusfortheSeverancePeriod(asdefinedbelow);continuedemployeewelfarebenefitsfortheSeverancePeriod;alumpsumpaymentequaltotheactuarialvalueoftheadditionalbenefitsunderBrooklynUnion'squalifiedandsupplementalretirementplanstheparticipantwouldhavereceivedhadheremainedemployedfortheSeverancePeriod;andoutplacementservicesatacostofnotmorethan$30,000.Inaddition,theparticipantwillreceiveanadditionalpayment,ifnecessary,tomakesuchparticipantwholeforanyexcisetaxonexcessparachutepaymentsimposedontheparticipant.The"SeverancePeriod"isaperiodof,eithertwoorthreeyears(asdesignatedbytheOrganizationandNominatingCommitteeoftheBrooklynUnionBoard)or,ifless,theperiodremaininguntilthe,participantreachesmandatoryretirementage.Forthepurposesofeligibilityforretirement,medical,dentalandlifeinsurance,theparticipant'willbedeemedtoremainemployedfortheentireSeverancePeriod.TheBrooklynUnionBoardhasdesignatedasparticipantsintheSeverancePlanMr.Catell,CraigG.Matthews,HelmutW.Peter,VincentD.Enright,AnthonyJ.DiBritaand6otherSeniorVicePresidentsofBrooklynUnion(eachwiththree-yearSeverancePeriods)and12VicePresidentsofBrooklynUnion(eachwithtwo-yearSeverancePeriods).IftheCombinationoccurredonJanuary1,1998,andallparticipantsintheplanwereterminatedimmediatelythereafter,itisestimatedthattheaggregateafter-taxcostoftheseverancebenefitsundertheSeverancePlanwouldbeapproximately$19,833,000.ComparisonoftheHoldingCompany'sCertificateofIncorporationandBy-LawstoBrooklynUnion'sCertificateofIncorporationandBy-LawsAuthorizedCapital.ThetotalauthorizedcapitalstockoftheHoldingCompanywillbe450,000,000sharesofHoldingCompanyCommonStock,parvalue$.01pershare,and100,000,000'sharesofHoldingCompanyPreferredStock,parvalue$.01pershare.ThetotalauthorizedcapitalstockofBrooklynUnionconsistsof900,000sharesofcumulativepreferredstock,parvalue$100pershare,2,000,000sharesofcumulativepreferredstock,parvalue$25pershare,and70,000,000sharesofBrooklynUnionCommonStock,parvalue$.33Npershare.ClassificationoftheBoardofDirectors.TheBrooklynUnionCertificateandtheBrooklynUnionBy-LawsprovidethattheBrooklynUnionBoardwillbedividedintothreeclasses;eachclasstoconsistasnearlyaspossibleofone-thirdofthedirectorsandtobeelectedeverythirdyeartoserveathree-yearterm.TheHoldingCompanyCertificateandtheHoldingCompanyBy-LawsdonotprovidethattheHoldingCompanyBoardwillbedividedintoclasses.RentovalofDirectors'illingVacanciesontliejloardofDirectors.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethat,subjecttotherightsof.holdersofHoldingCompanyPreferred102 Stock,ifany,anydirectorservingontheHoldingCompanyBoardmayberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleastamajorityoftheVotingPower,votingtogetherasasingleclass.TheBrooklynUnionCertificateandtheBrooklynUnionBy-Lawshavenocomparableprovision.UndertheNYBCL,unlessthecertificateofincorporationorby-lawsofacorporationprovidesotherwise,adirectormayberemovedonlyforcausebythevoteofamajorityofthevotescastatashareholdermeetingbytheholdersofsharesentitledtovotethereon.BoththeHoldingCompanyBy-LawsandtheBrooklynUnionBy-LawsprovidethatvacanciesontheBoardofDirectorsmaybefilledbytheremainingDirectors,eveniflessthana,quorum.MeetingsofShareholders.TheHoldingCompanyCertificateandtheHoldingCompanyBy-LawsprovidethataspecialmeetingofshareholdersmaybecalledonlybytheHoldingCompanyBoardpursuanttoaresolutionapprovedbyamajorityoftheentireHoldingCompanyBoard.TheBrooklynUnionBy-LawsprovidethataspecialmeetingofshareholdersmaybecalledbytheChairmanoftheBoardofBrooklynUnionorbytheBrooklynUnionBoardpursuanttoaresolutionapprovedbyamajorityoftheentireBrooklynUnionBoard.AntenCknentofCorporateOtarterandBy-Laws.TheNYBCLprovidesthatanamendmenttoacorporation'scertificateofincorporationmaybeauthorizedbyvoteoftheboardofdirectors,followedbyavoteoftheholdersofamajorityofalloutstandingsharesentitledtovotethereonatameetingofshareholdersandtheby-lawsofacorporationmaybeamendedbyavoteoftheholdersofamajorityofalloutstandingsharesentitledtovoteintheelectionofanydirectorsofthecorporationor,ifsoprovidedinthecertificateofincorporationorby-laws,bytheboardofdirectorsbysuchvoteasmaybespecifiedtherein.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethattheaffirmativevoteoftheholdersofatleast80percentoftheVotingStockthenoutstanding,votingtogetherasasingleclass,willberequiredtochangeoradoptanyprovisioninconsistentwiththeprovisionsthereinrelatingtocallingofspecialmeetingsofshareholders,theelectionofdirectors,fillingofvacanciesontheHoldingCompanyBoard,removalofdirectorsandtheamendmentofcertainprovisionstheHoldingCompanyBy-LawsandtheHoldingCompanyCertificate.TheBrooklynUnionCertificateissilentonsuchmattersandtheBrooklynUnionBy-Lawsprovidethatby-lawsmaybeamendedbytheBrooklynUnionBoardorbytheholdersofthesharesatthetimeentitledtovoteintheelectionofanydirectorsandthatby-lawsadoptedbytheBrooklynUnionBoardmaybeamendedorrepealedbytheshareholdersinsuchmanner,0+icers.TheHoldingCompanyBy-Lawsprovidethat,effectiveasofthefirstanniversaryoftheconsummationoftheBindingSliareExchanges,Dr.CatacosinosshallbeelectedChairmanoftheHoldingCompanyBoardandChairmanoftheExecutiveCommitteeoftheHoldingCompanyBoardandMr.CatellshallbeelectedChiefExecutiveOfficeroftheHoldingCompany.ThisBy-Lawmaybemodifiedonlybytheaffirmativevoteoftwo-thirdsoftheentireHoldingCompanyBoard.TheBrooklynUnion-MeetingGenera/.ThisJointProxyStatement/ProspectusisfurnishedtoholdersofBrooklynUnionCommonStockinconnectionwiththesolicitationofproxiesbytheBrooklynUnionBoardforuseattheBrooklynUnionMeetingtoconsiderandvoteupontheadoptionoftheBrooklynUnion/LILCOAgreeinent,theKeySpanShareExchange(asdescribedinAnnexJhereto)andtotransactsuchotherbusinessasmayproperlycomebeforetheBrooklynUnionMeeting.EachcopyofthisJointProxyStatement/ProspectusmailedtoshareholdersofBrooklynUnionisaccompaniedbyaformofproxyforuseattheBrooklynUnionMeeting.IThisJointProxyStatement/ProspectusisalsofurnishedtoBrooklynUnionshareholdersasaprospectusinconnectionwiththeissuancebytheHoldingCompanyofthesharesofHoldingCompanyCommonStockinconnectionwiththeCombinationandaprospectusinconnectionwiththeissuancebyKeySpanofthesharesofKeySpanCommonStockinconnectionwithKeySpanShareExchange.Date,PlaceandTiIne;RecordDate.TheBrooklynUnionMeetingwillbeheldatOperaHouse,BrooklynAcademyofMusic,30LafayetteAvenue,Brooklyn,NewYork11217,onThursday,August7,1997,at3:00103 tp.m.localtime.TheBrooklynUnionBoardhasfixed.thecloseofbusinessonJune26,1997astheRecordDateforthedeterminationoftheholdersofBrooklynUnionCommonStockentitledtoreceivenoticeofandtovoteattheBrooklynUnionMeeting.VotingRights'.AtthecloseofbusinessonJune23,199751,864,212sharesofBrooklynUnionCommonStockwereoutstanding.EachshareofBrooklyn,UnionCommonStockoutstandingontheRecordDateis"entitledtoonevoteuponeachmatterproperlysubmittedattheBrooklynUnionMeeting.Theaffirmativevoteofatleasttwo-thirdsoftheoutstandingsharesofBrooklynUnionCommonStockisrequiredtoadopttheBrooklynUnion/LILCOAgreementandtoadopttheKeySpanExchangeAgreementattheBrooklynUnionMeeting.ThepresenceinpersonorbyproxyattheBrooklynUnionMeetingoftheholdersofatleastamajorityoftheoutstandingsharesofBrooklynUnionCommonStockisnecessarytoconstituteaquorumforthetransactionofbusiness.'Abstentionswillbecountedaspresentforpurposesofdeterminingwhetheraquorumispresent.BecausetheadoptionoftheBrooklynUnion/LILCOAgreementandtheKeySpanExchangeAgreement'requirestheapprovalofatleasttwo-thirdsoftheoutstandingsharesofBrooklynUnionCommonStock,abstentionsorthefailuretovotewillhavethesameeffectasanegativevote.UndertherulesoftheNewYorkStockExchange,brokerswhoholdsharesinstreetnameforcustomerswillnothavetheauthoritytovoteontheadoptionoftheBrooklynUnion/LILCOAgreementortheKeySpanExchangeAgreementunlesstheyreceivespecificinstructionsfrombeneficialowners.Suchabrokernon-votewillbecountedaspresentforpurposesofaquorumbutwillotherwisehavethes'arneeffectasavoteagainstadoptionoftheBrooklynUnion/LILCOAgreementortheKeySpanExchangeAgreement.AsofMay1,1997,directorsandcxccutiveofficersofBrooklynUnionandtheiraffiliatesownedbeneficiallyanaggregateof120,405sharesofBrooklynUnionCommonStock(includingshareswhichmaybeacquireduponexerciseofemployeestockoptions),orlessthanonepercentofthesharesofBrooklynUnionCommonStockoutstandingonsuchdate.DirectorsandexecutiveofficersofBrooklynUnionhaveindicatedtheirintentiontovotetheirsharesofBrooklynUnionCommonStockinfavorofadoptionoftheBrooklynUnion/LILCOAgreementandtheKeySpanExchangeAgreement.See"SelectedInformationConcerningBrooklynUnion-PotentialConflictsofInterestsofCertainPersonsintheCombinationandtheLIPATransaction."VotingandRevocationofProxies.SharesofBrooklynUnionCommonStockrepresentedbyaproxyproperlysignedandreceivedatorpriortotheBrooklynUnionMeeting,unlesssubsequentlyrevoked,willbevotedinaccordancewiththeinstructionsthereon.Ifaproxyissignedandreturnedwithoutindicatinganyvotinginstructions,thesharesofBrooklynUnionCommonStockrepresentedbythcproxywillbevotedFORadoptionoftheBrooklynUnion/LILCOAgreementandFORadoptionoftheKeySpanExchangeAgreement.BrooklynUnionproxyholdersmayintheirdiscretionvotesharesvotedinfavorofadoptionoftheBrooklynUnion/LILCOAgreementortheKeySpanExchangeAgreementtoadjourntheBrooklynUnionMeetingtosolicitadditionalproxiesinfavorofsuchproposal.AnyproxygivenpursuanttothissolicitationmayberevokedbythepersongivingitatanytimebeforetheproxyisvotedbythefilingofaninstrumentrevokingitorofadulyexecutedproxybearingalaterdatewiththeSecretaryofBrooklynUnion,priortoorattheBrooklynUnionMeeting,orbyvotinginpersonattheBrooklynUnionMeeting.Allwrittennoticesofrevocationandothercommunicationswithrespecttorevocationofproxiesshouldbeaddressedasfollows:TheBrooklynUnionGasCompany,OneMetroTechCenter,Brooklyn,NewYork11201-3851,Attention:Secretary.AttendanceattheBrooklynUnionMeetingwillnotinandofitselfconstituterevocationofaproxy.SharesofBrooklynUnionCommonStockheldinthenamesofthetrusteesunderBrooklynUnion'sEmployeeSavingsPlanmaybevotedbysuchtrusteesupontheinstructionsofparticipantsinsuchPlan,orintheabsencethereof,assuchtrusteesdeemappropriate.
TheBrooklynUnionBoardisnotcurrentlyawareofanybusinesstobeacteduponattheBrooklynUnionMeetingotherthanasdescribedherein.,If,how'ever,othermattersareproperlybroughtbeforethe,BrooklynUnionMeeting,thepersonsappointedasproxieswillhavediscretiontovoteoractthereonaccordingtotheirbestjudgment.ShareholdersofBrooklynUnionwillnotbeentitledtopresentanymattersforconsiderationattheBrooklynUnionMeeting.ConfidentialVoting.BrooklynUnfonhasadoptedapolicytotheeffectthatallproxy(votinginstruction)cards,ballotsandvotetabulationswhichidentifytheparticularvoteofaBrooklynUnionshareholderaretobekeptsecretfromBrooklynUnion,itsdirectors,officersandemployees.Accordingly,proxycardsarereturnedinenvelopesaddressedtothetabulator,Georgeson&CompanyInc,.WallStreetStation,P.O.Box1102,NewYork,pewYork10269-0667,whichreceivesandtabulatestheproxiesandisindependentofBrooklynUnion.Thefinaltabulationisinspectedbyaninspector(s)ofelectionwhoalsoisindependentofBrooklynUnion,itsdirectors,officersandemployees.TheidentityandvoteofanyshareholderwillbedisclosedneithertoBrooklynUnion,itsdirectors,officersoremployees,"nortoanythirdpartyexcept(i)toallowtheindependentinspector(s)ofelectiontocertifytheresultsofthevotetoBrooklynUnion,itsdirectors,officersandemployees;(ii)asnecessarytomeetapplicablelegalrequirementsandtoassertordefendclaimsfororagainstBrooklynUnion;or(iii)intheeventashareholderhasmadeawrittencommentonsuchformofproxy.SolicitationofProxies.'nadditiontosolicitationbyinail,directors,officersandemployeesofBrooklynUnion,whowillnotbespecificallycompensatedforsuchservices,maysolicitproxiesfromtheshareholdersofBrooklynUnion,personallyorbytelephone,telecopyortelegramorotherformsofcommunication.Brokeragehouses,nominees,fiduciariesandothercustodianswillberequestedtoforwardsolicitingmaterialstobeneficialownersandwillbereimbursedfortheirreasonableexpensesincurredinsendingproxymaterialstobeneficialowners.Inaddition,BrooklynUnionhasretainedGeorgeson&CompanyInc.toassistinthesolicitationofproxiesfromitsshareholders.Thefeestobe'paidtosuchfirmforsuchservicesbyBrooklynUnionarenotexpectedtoexceed$25,000,plusreasonableout-of-pocketcostsandexpenses.BrooklynUnionwillbearitsownexpensesinconnectionwiththesolicitationofproxiesfortheBrooklynUnionMeeting,exceptthateachofBrooklynUnionandLILCOwillpayone-halfofthecostsandexpensesincurredinconnectionwithprintingthisJointProxyStatement/Prospectusandone-halfofallfilingfees.BusinessofBrooklynUnionBrooklynUnionwasincorporatedintheStateof'NewYorkin1895asat:ornbinationofexistingcompanies,tilefirstofwhichwasgrantedafranchise'in1849.BrooklynUniondistributesnaturalgasatretailintheBoroughsofBrooklynandStatenIslandandtwo-thirdsoftheBoroughofQueensinNewYorkCity.BrooklynUnion'sprincipalnon-utilitysubsidiariesparticipateandowninvestmentsingasandoilexploration,productionandprocessing,gaspipelinetransportationandstorage,cogeneration,marketingandotherenergy-relatedservices.BrooklynUnion'smailingaddressisOneMetroTechCenter,Brooklyn,New'ork11201-'3850anditsgeneraltelephonenumberis(718)403-2000.Territory.BrooklynUnion'sserviceterritoryisapproximately187squaremiles.Thepopulationoftheterritoryservedisapproximately4millionpersons.AsofSeptember30,1996,BrooklynUnionhadapproximately1,126,000activemeters,ofwhichapproximately1,089,000'wereresidential.Employees.AsofSeptember30,1996,BrooklynUnionhadapproximately3,000fulltimeemployeesofwhichapproximately1,745.belongtoLocal101oftheTransportWorkersUnionand185arerepresentedbyLocal3oftheInternationalBrotherhoodofElectricalWorkers.EffectiveNovember1995andAugust1995,respectively,BrooklynUnionandtheseunionsagreeduponnewthreeyearlaboragreementswhichprovideforwageincreasesofapproximately9%overthetermoftheagreements.Regulation.Utilityretailsales,whichincludesalesofgas,transportationandbalancingservices,aremadeprimarilyunderrateschedulesandtariffsfiledwithandsubjecttothejurisdictionofthePSC,Amendmentshave105 beenmadetorateschedulesandtariffstoreflect(heconditionsandratesunderwhichdeliveryandotherservicesareprovidedtocust'omerswhoopttohavetheirgassuppliedbythirdparties.RateschedulesalsohavebeenestablishedgoverningtheprovisionofcertainserVicestosuchmarketers.BrooklynUnionisalsosubjecttoregulationbythePSCwithrespecttoissuancesandsalesofsecurities,adequacyandcontinuanceofservice,safetyandsitingofcertainfacilities,accounting,andothermatters.rAdditionalinformationconcerningBrooklynUnionanditssubsidiariesisincludedintheBrooklynUniondocumentsfiledwiththeCommissionwhichareincorporatedby,referenceherein.See"WhereYouCanFindMoreInformation."SecurityOwnershipofCertainBeneficialOwnersandManagementCurrentOwnershipofBrooklynUnionCommonStock.ThefollowingtablesetsforthinformationasofJune23,1997,withrespecttothenumberofsharesofBrooklynUnionCommonStockbeneficiallyownedand/orBrooklynUnionCommonStockequivalentsgrantedunderthePerformancePlan,theDirectors'eferredCompensationPlanortheCorporateIncentiveCompensationPlan,whichdo,notconferanyvotingrights,ownedby(i)directorsandcertainexecutiveofficersofBrooklynUnionand(ii)alldirectorsandexecutiveofficersofBrooklynUnionasagroup.NameR.B.Catell.K.I:Chenault'.S.Christensen.D.H.ElliottA.H.FishmanJ.L.LaroccaC.G.MatthewsE.D.Miller.J.Q.Riordan.C.Uribe.........H.W.PeterA.J.DiBrita.V.D.EnrightAllDirectorsandExecutiveOfficersasagroup,includ-ingthosenamedabove,atotalof24persons.........TotalofCommon'tockBenettctalty'ommonStockOwned&EquivalentsBeneficiallyOwnedCommonStockEquivalents26,0024,4099,7459,3236,7385,00715,8177,4598,2982,04614,8176,0006,40618,4811,5514,9771,7502,7383,35411,4975,9461,500010,483',6814,3977,521',8584,7687,5734,0001,6534,3201,5136,7982,0464,3341,3192,009184,235'23,96360,272LThefollowingtablesetsforthcertaininformation,withrespecttothesharesofBrooklynUnionCommonStockownedbyeachpersonknownbyBrooklynUniontobethebeneficialownerofmorethan5%oftheissuedandoutstandingBrooklynUnionCommonStock,asofMarch31,1997.CommonStockTitleofClassNamesandAddressesOwnedPercentageofClassLongIslandLightingCompany9,948,682*'6.6%175EastOldCountryRoadHicksville,NY11801*RepresentsthenumberofsharesthatmaybepurchasedpursuanttotheAmendedBrooklynUnionStockOptionAgreementattachedas.AnnexCanddescribedinthisJointProxyStatement/Prospectus.See"TheStockOptionAgreements."106 CAUTIONARYSTATEMENTCONCERNINGFORWARD-LOOKINGSTATEMENTSBrooklynUnionandLILCOhavemadeforward-lookingstatementsinthisdocumentandinthedocumentsincorporatedbyreferenceinthisdocumentthat,aresubjecttorisksanduncertainties.Forward-lookingstatementsincludetheinformationconcerningpossibleorassumedfutureresultsofoperationsofthecompaniesandtheHoldingCompanysetforthunder"TheBrooklynUnion/LILCOCombination-CommonReasonsfortheCombination,""-OpinionsofLILCO'sFinancialAdvisor"and"SelectedInformationConcerningBrooklynUnion-OpinionofBrooklynUnion'sFinancialAdvisor"andthoseprecededby,followedbyorthatincludethewords"believes,""expects,""anticipates"orsimilarexpressions.Forthosestatements,BrooklynUnionandLILCOclaimtheprotectionofthesafeharborforforward-lookingstatementscontainedinthePrivateSecuritiesLitigationReformActofl,995.ShareholdersofBrooklynUnionandshareholdersofLILCOshouldunderstandthatthefollowingimportantfactors,inadditiontothosediscussedelsewhereinthisdocumentandinthedocumentswhichareincorporatedbyreferenceherein,couldaffectthefutureresults'oftheHoldingCompany,BrooklynUnionandLILCO,andcouldcausethoseresultstodiffermateriallyfromthoseexpressedinsuchforward-lookingstatements:materiallyadversechangesineconomicconditionsinthemarketsservedbyBrooklynUnionorLILCOandinthemarketsthatwillbeservedbythem;asignificantdelayintheexpectedclosingoftheCombinationand/orLIPATransaction,orthefailureofeithertransactiontoclose;futureregulatoryactionsandconditionsinBrooklynUnion'sandLILCO'soperatingareas;andthetimingandextentofchangesincommoditypricesfor'crudeoil,naturalgas,electricityandinterestrates.I'EGALMATTERSCertainlegalmattersrelatingtoLILCOinconnectionwiththeCombinationandtheLIPATransaction,including,amongotherthings,certainlegalmatterswithrespecttothevalidityofthesecuritiestobeissued,willtbepasseduponforLILCObyKramer,Levin,Naftalis&Frankel,NewYork,NewYorkandbyHunton&Williams,Washington,D.C.CertainlegalmattersrelatingtoBrooklynUnioninconnectionwith,theCombinationwillbepasseduponforBrooklynUnionbyWachtell,Lipton,Rosen&Katz,NewYork,NewYork.EXPERTSThefinancialstatementsofLILCOappearinginitsAnnualReport(Form10-K/A)fortheyearendedDecember31,1996andtheconsolidatedfinancialstatementsofBrooklynUnionappearinginitsAnnualReport(Form10-K)fortheyearendedSeptember30,1996,bothincorporatedbyreferenceinthisJointProxyStatement/ProspectusofLILCOandBrooklynUnion,whicharereferredtoandmadepartofthisRegistrationStatement,havebeenauditedbyErnst&YoungLLPandArthurAndersenLLP,respectively,assetforthintheirreportsthereonincludedthereinandincorporatedhereinbyreference.Suchfinancialstatementsareincorporatedhereinbyreferenceinrelianceuponsuchreportsgivenupontheauthorityofsuchfirmsasexpertsinaccountingandauditing.107
,FUTURESHAREHOLDERPROPOSALS0AssumingthetimingoftheconsummationofthetransactionscontemplatedintheBrooklynUnion/LILCOAgreementrequireLILCOtoholdanannualmeetingin1998,proposalsofshareholdersintendedtobepresentedatsuchmeetingmustbereceivedbyLILCOatitsofficesat175EastOldCountryRoad,Hicksville,NewYork11801,Attention:CorporateSecretary,notlaterthanNovember24,1997.ProposalsmustcomplywiththeSEC'sproxyregulationsrelatingtoshareholderproposalsinordertobeconsideredforinclusioninLILCO'sproxymaterials.'AssumingthetimingoftheconsummationofthetransactionscontemplatedintheBrooklynUnion/LILCOAgreementortheKeySpanExchangeAgreementrequireBrooklynUnionorKeySpantoholdanannualmeetingin1998,proposalsofshareholdersintendedtobepresentedatsuchmeetingmustbereceivedbyBrooklynUnionatitsofficesatOneMetroTechCenter,Brooklyn,NewYork11201-3850,Attention:Secretary,notlaterthanSeptember1,1997.ProposalsmustcomplywiththeSEC'sproxyregulationsrelatingtoshareholderproposalsinordertobeconsideredforinclusioninBrooklynUnion'sorKeySpan'sproxymaterials.MattersintendedtobepresentedbyholdersofBrooklynUnionorKeySpanCommonStockatthe1998annualmeetingmustbestatedinwritinganddeliveredtotheappropriateSecretarybysuchshareholdersduringtheperiodbetween90and60dayspriortothedateofthemeeting,whichiscxpcctedtobeheldonFebruary5,1998.108 WHEREYOUCANI<INDMOREINFORMATIONLILCOandBrooklynUnionfileannual,quarterlyandspecialreports,proxystatementsandotherinformationwiththeSEC.FollowingtheCombination,theHoldingCompanywillalsomakethesefilingswiththeSEC.Youmayreadandcopyanyreports,statementsorotherinformationthatthecompaniesfileattheSEC'spublicreferenceroomsatRoom1024,JudiciaryPlaza,450FifthStreet,N.W.,Washington,D.C.20549,andattheSEC'sRegionalOfficeslocatedat7WorldgradeCenter,Suite1300,NewYork,NewYork10048andatCiticorpCenter,500WestMadisonStreet,Suite1400,Chicago,Illinois60661-2511.PleasecalltheSECat1-800-SEC-0330forfurtherinformationonthepublicreferencerooms.OurSECfilingsshouldalsobeavailabletothepublicfromcommercialdocumentretrievalservicesandattheInternetwebsitemaintainedbytheSECathttp://www.sec.gov.Inaddition,materialandinformationconcerningBrooklynUnionandLILCOcanbeinspectedattheNewYorkStockExchange,Inc.,20BroadStreet,7thFloor,NewYork,'N'wYork10005,onwhichexchangetheBrooklynUnionCommonStock,theLILCOCommonStock,theLILCOPreferredStock,certainoftheLILCOGenera1andRefunding.BondsandtheLILCODebenturesarelisted,andmaterialandinformationconcerningLILCOcanalsobeinspectedatthePacificStockExchange,Inc.,301PineStreet,SanFrancisco,California94104,onwhichexchangetheLILCOCommonStockislisted.TheHoldingCompanyluisfiledaregistrationstatementonFormS-4toregisterwiththeSECthesharesofHoldingCompanyCommonStockandHoldingCompanyPreferredStocktobeissuedinconnectionwiththeBrooklynUnion/LILCOAgreementandtheLIPAAgreement.KeySpanhasalsofiledregistrationstatementsonFormS-4toregisterwiththeSECthesharesofKeySpanCommonStocktobeissuedinconnectionwiththeKeySpanholdingcompanyrestructuringandshareexchanges.ThisJointProxyStatement/Prospectusispartofeachsuchregistrationstatement,aswellasbeingaproxystatementfortheannualmeetingofL'ILCOandthespecialmeetingofBrooklynUnion.InaccordancewithSECrules,eachsuchregistrationstatementmaycontaintadditionalinformationthatyouwillnotfindintlieJointProxy,Statement/Prospectus.Theregistrationstatementsareavailableforinspectionandcopyingassetforthabove.TheSECallowsusto"incorporatebyreference"informationintothisJointProxyStatement/Prospectus,whichmeansthatwecandiscloseimportantinformationtoyoub'yreferringyoutoanotherdocumentfiledseparatelywiththeSEC.Th'einformationin'corporatedbyreferenceisdeemedtobepartofthisJointProxyStatement/Prospectus,exceptforanyinformationsupersededbyinformationcontaineddirectlyinthisJointProxyStatement/Prospectus.ThisJointProxyStatement/ProspectusincorporatesbyreferencethedocumentssetforthbelowthatwercpreviouslyfiledwiththeSECbyLILCO(FileNo.1-3571)orBr'ooklynUnion(FileNo.1-722).Thesedocumentscontainimportantinformationaboutourcompaniesandtheirfinancialcondition.1.LILCO'sAnnualReportonForm10-K/AfortheyearendedDecember31,1996.2.LILCO'sTransitionReportonForm10-Qforthe3monthperiodendedMarch31,1997.3.LILCO'sCurrentReportsonForm8-KdatedFebruary25,1997,March19,1997,asamended,andApril11,1997.4.BrooklynUnion'sAnnualReportonForm10-K/AfortheyearendedSeptember30,1996.5.BrooklynUnion'sQuarterlyReportsonForm10-QforthequartersendedDecember31,1996andMarch31,1997.6.BrooklynUnion'sCurrentReportsonForm8-KdatedDecember30,1996,February24,1997andMarch19,1997.7.TheinformationcontainedinBrooklynUnion'sProxyStatementdatedDecember30,1996foritsAnnualMeetingofShareholdersheldonFebruary6,1997.WemayberequiredbytheSECtofileotherdocumentspursuanttoSection13(a),13(c),14or15(d)oftheSecuritiesExchangeActof1934,asamended,betweenthetimethisJointProxyStatement/Prospectusissent109 tandthedatetheLILCOMeetingandtheBrooklynUnionMeetingareheld.ThesedocumentswillbedeemedtobeincorporatedbyreferenceinthisJointProxyStatement/ProspectusandtobeapartofitfromthedatetheyarefiledwiththeSEC.Ifyouareashareholder,wemayhavesentyousomeofthedocumentsincorporatedbyreference,butyoucanobtainanyofthemthroughus,theSECortheSEC'sInternetwebsiteasdescribedabove.Documentsincorporatedbyreferenceareavailablefromuswithoutcharge,excludingallexhibitsunlesswehavespecificallyincorporatedbyreferenceanexhibitinthisJointProxyStatement/Pro'spectus.ShareholdersmayobtaindocumentsincorporatedbyreferenceinthisJointProxyStatement/Prospectusbyrequestingtheminwritingor.bytelephonefromtheappropriatecompanyatthefollowingaddresses:KathleenA.MarionVicePresidentandCorporateSecretaryLongIslandLightingCompany175EastOldCountryRoid"Hicksville,NewYork11801(516)545-4914RobertR.WieczorekVicePresident,SecretaryandTreasurerTheBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn,NewYork11201-3850(718)403-3388Ifyouwouldliketorequestdocumentsfromus,pleasedosopromptlyinordertoreceivethembeforetheShareholderMeetings.YOUSHOULDRELYONLYONTHEINFORMATIONCONTAINEDORINCORPORATEDBYREFERENCEINTHISJOINTPROXYSTATEMENT/PROSPECTUSTOVOTEONTHEBROOKLYNUNIONAGREEMENT,THELIPAAGREEMENTORTHEKEYSPANHOLDINGCOMPANYPROPOSAL.WEHAVENOTAUTHORIZEDANYONETOPROVIDEYOUWITHINFORMATIONTHATISDIFFERENTFROMWHATISCONTAINEDINTHISJOINTPROXYSTATEMENT/PROSPECTUS.THISJOINTPROXYSTATEMENT/PROSPECTUSISDATEDJUNE27,1997.YOU,SHOULDNOTASSUMETHATTHEINFORMATIONCONTAINEDINTHISJOINTPROXYSTATEMENT/PROSPECTUSISACCURATEASOFANYDATEOTHERTHANTHATDATE,ANDNEITHERTHEMAILINGOFTHISJOINTPROXYSTATEMENT/PROSPECTUSTOSHAREHOLDERSNORTHEISSUANCEOFBLHOLDINGCORP.COMMONSTOCKINTHECOMBINATIONORKEYSPANCOMMONSTOCKINTHEKEYSPANSHAREEXCHANGESHALLCREATEANYIMPLICATIONTOTHECONTRARY.110 ILISTOFDEFINEDTERMSDefinedTermAmendedStockOptionAgreements...AntitrustDivisionAtomicEnergyAct.BasicAgreements.BearStearns.BrooklynUnibn.BrooklynUnionBy-Laws...........BrooklynUnionCertificate..........BrooklynUnionCommonStock.....".BrooklynUnionComparables........BrooklynUnionDissentingShares....BrooklynUnion/LILCOAgreement...BrooklynUnionMeeting............BrooklynUnionPlans..............BrooklynUnionRatio..............BrooklynUnionStockOptionAgreementBusinessCombination..............BusinessCombinationProposal......CancelledShares.CashPurchasePriceCertificateCodeCombinationConcentratedNuclearGroup.........ConsiderationContingentIssuance...............DCFDillonRead.DesignatedNumberDissentingPreferredShares..........DissentingShares.EBITEBITDAEffectiveTime.................ElectricMergerTransactions.........ERISA.ExchangeAgent.ExchangedSharesFairMarketRateFERC.FPAFTCGasMergerTransactions............HedgeArrangements...............HistoricalPeriod.HistoricalTradingRatios............HoldingCompany.Page'umber51528721168681797'701717752,18237876848671372,1732187099207185182828919872717186515151987699972,11,17DefinedTermHoldingCompanyAct..'..'...;-......HoldingCompanyBy-Laws..........HoldingCompanyCertificate.........'oldingCompanyCommonStock....HoldingCompanyPreferredStock....HoldingCompanySeriesAAPreferredStockHSRActIncentivePlanIssuerJointProxyStatement/Prospectus......KeySpan.KeySpanAgreement.................KeySpanCommonStock....'.........KeySpanShareExchange.............KramerLevin.LargeNuclearGroup.LILCO'LILCOasadjusted.~LILCOBy-L'aws.LILCOCertificateLILCOCommonStock...............LILCOComparables.LILCODissentingShares.............LILCOMeeting.LILCOPlans.........LILCOPreferredStock...............LILCOStockOptionAgreement.......LIPALIPAActLIPAAgreementLIPAClosingLIPAEffectiveTime......LIPARatio.LIPASubLIPATransactionLIPATransmissionandDistributionSystemMake-WholeAmountMarket/OfferPriceMergerMerrillLynchMerrillLynchOpinion...............Non-nuclearGroupNon-redeemablePreferredStock.......NoticeDateNRC.NuclearAssetsE185191831719191918'033111,6868,1797701775172318201884841818,84185785831720963385835231PageNumber5066661766111 DefinedTeHllNYBCL.OptionHolderOptionShares.................OptionsOriginalAgreementOriginalRatio.PACBPAL.........................PerformancePlan.PreferredStockDesignation.....PrivatePlacementPreferredStockProjectProjectedPeriodPromissoryNotes.ProxyCommitteePSC...............RatioRecordDateRegulatoryAssets.RepresentativesRepurchasePeriod..RestrictedSharesRetainedAssetsRetainedDebtAmount....PageNumber4482828223182152101678452998649201817317682838486DefinedTefnlRetainerPlanRetirementPlan.SecuritiesActSECSeriesAAPreferredStock..........SeriesCCPreferredStock...,......SeriesGGPreferredStock..........SeriesQQPreferredStock..........SeriesUUPreferredStock....:..'...SeverancePeriod.SeverancePlanShareholderMeetings..............ShareholderNoticeProcedure.......ShorehamStockOptionAgreements..........StockPlanSubjectParty.SurvivingCorporation.............T&DBusinessTransferredAssetsTransfereeSubsidiaries............TransferTaxesTriggerEventVotingPowerNumber9192441717171717102102176820239180843118,57,8438408168~112 ANNEXAAMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEANDMERGERbetweenTHEBROOKLYNUNIONGASCOMPANYANDLONGISLANDLIGHTINGCOMPANYDATEDASOFJUNE26,1997
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eTABLEOFCONTENTSARTICLEITHETRANSACTIONSSEcrION1.1THEBINDINGSHAREEXCHANGEANDMERGERSEcrIoN1.2EFFECTIVETIMEARTICLEIIPageA-2A-2SEcrIoN2.1SECTION2.2SECTION2.3TREATMENTOFSHARESEFFECTONCAPITALSTOCK.DISSENTINGSHARESISSUANCEOFNEWCERTIFICATESARTICLEIIITHECLOSINGA-2A-3A-4SEcrIoN3.1CLOSINGARTICLEIVREPRESENTATIONSANDWARRANTIESOFBROOKLYNUNIONA-6SECTION4.1SEcrIQN4.2SEcrIoN4.3SEcnoN4.4SECTION4.5SECTION4.6SEcnoN4.7SEcI'IQN4.8SEcrIoN4.9SECTION4.10SEcI'IQN4.11SECTION4.12SEcrION4.13SECTION4.14SEcnoN4.15SECTION4.16SECTION4.17SECTION4.18SECTION4.19ROVALS;ARTICLEVREPRESENTATIONSANDWARRANTIESOFLILCOORGANIZATIONANDQUALIFICATIONSUBSIDIARIESCAPITALIZATIONAUTHORITY;NON-CONTRAVENTION;STATUTORYAPPCOMPLIANCEREPORTSANDFINANCIALSTATEMENTSABSENCEOFCERTAINCHANGESOREVENTSLITIGATION.REGISTRATIONSTATEMENTANDPROXYSTATEMENTTAXMATTERSEMPLOYEEMATTERS;ERISAENVIRONMENTALPROTECTION.REGULATIONASAUTILITY.VOTEREQUIREDACCOUNTINGMAXI'ERSAPPLICABILITYOFCERTAINPROVISIONSOFLAWOPINIONOFFINANCIALADVISORINSURANCEOWNERSHIPOFLILCOCOMMONSTOCK.BUSINESSSYNERGIESA-6A-6A-7A-7A-8A-9A-9A-9A-9A-11A-12A-14A-14A-14"A-14A-14A-14A-15A-15SEcrIoN5.1ORGANIZATIONANDQUALIFICATIONSEcI'IQN5.2SUBSIDIARIESISECTION5.3CAPITALIZATIONSEcrIoN5.4'UTHORITY;NON-CONTRAVENTION;STATUTORYAPPROVALS;COMPLIANCELA-15A-15A-15A-16 SECTION5.5SEcI'IQN5.6SrcrIoN5.7SECTION5.8SEcrIQN5.9SECTION5.10SECTION5.11SECTION5.12SECTION5.13SECTION5.14SECTION5.15SECTION5.16SEcrIoN5.17SEcl'IQN5.18SECTION5.19SECTION6.1SEcrroN7.1SECTION7.2SEcrIoN7.3SEcrIoN7.4SEcrIoN7.5SECTION7.6SEcrIoN7.7SECTION7.8SrcrIoN7.9SEcrIoN7.10SECTION7.11SECTION7.12SECTION7.13SEcrIoN7.14,SEcrIQN7.15SECI'ION7.16SEcrIoN7.17SECTION7.18SEcrIoN7.19SEcrroN7.20SECTION'.1SEcrIoN8.2SEcrIoN8.3REPORTSA'NDFINANCIALSTATEMENTS............ABSENCEOFCERTAINCHANGESOREVENTS..........LITIGATION.REGISTRATIONSTATEMENTANDPROXYSTATEMENTTAXMATTERS.............................EMPLOYEEMATTERS;ERISA.ENVIRONMENTALPROTECTION.REGULATIONASAUTILITY.~...,VOTEREQUIRED.ACCOUNTINGMATI'ERS.............APPLICABILITYOFCERTAINPROVISIONSOFLAWOPINIONOFFINANCIALADVISORINSURANCE.OWNERSHIPOFBROOKLYNUNIONCOMMONSTOCK..BUSINESSSYNERGIES......,...............ARTICLEVICONDUCTOFBUSINESSPENDINGTHEEFFEcfIVETIMECOVENANTSOFTHEPARTIES...................ARTICLEVIIADDITIONALAGREEMENTSACCESSTOINFORMATIONJOINTPROXYSTATEMENTANDREGISTRATIONSTATEMENT..REGULATORYMATTERS.......................SHAREHOLDERAPPROVAL.DIRECTORS'NDOFFICERS'NDEMNIFICATION.,DISCLOSURESCHEDULES...................PUBLICANNOUNCEMENTS......RULE145AFFILIATES...........EMPLOYEEAGREEMENTS.........EMPLOYEEBENEFITPLANS.....STOCKPLANS...............'NOSOLICITATIONSCOMPANYBOARDOFDIRECTORS..SENIOREXECUTIVES..............EXPENSESFURTHERASSURANCES............POST-EXCHANGEOPERATIONS.....OTHERTRANSACTIONSEMPLOYMENTAGREEMENT.HOLDINGCOMPANY........................c.....ARTICLEVIIICONDITIONSCONDITIONSTOEACHPARTY'SOBLIGATIONTOEFFECTTHETRANSACTIONS.....CONDITIONSTOOBLIGATIONOFLILCOTOEFFECTTHETRANSACTIONS........CONDITIONSTOOBLIGATIONOFBROOKLYNUNIONTOEFFECTTHETRANSACTIONS...........PageA-17A-17A-17A-17A-18A-'19A-20A-21A-21A-21A-21A-21A-21A-22A-22A-22A-26A-27A-27A-28A-28A-29A-29A-30A-30A-30A-31A-32A-32A-32A-33A-33A-33A-33A-34A-34A-34A-35A-36 ARTICLEIXTERMINATION>AMENDMENTANDWAIVERSECTION9.1TERMINATION.SEcrtoN9.2EFFECTOFTERMINATION.SEcTIDN9.3TERMINATIONFEE;EXPENSES.SECTION9.4AMENDMENTSECTION9.5WAIVER'RTICLEXGENERALPROVISIONSSECTIDN10.1NON-SURVIVAL;EFFECTOFREPRESENTATIONSANDWARRANTIES..SECTION10.2BROKERSSEcrroN10.3NOTICESSECTION10.4MISCELLANEOUSSECTION10.5INTERPRETATION.SEcrtoN10.6COUNTERPARTS;EFFECT.SEGTION10.7PARTIESININTEREST;ASSIGNMENTSEcrIDN10.8WAIVEROFJURYTRIALANDCERTAINDAMAGESSECTION10.9ENFORCEMENT............PageA-37A-38A-39A-40A-40'-40A-40A-41A-41A-41A-41A-42A-42A-42EXHIIIITAFormofAmendedandRestatedLILCOStockOptionAgreementtEXHIBITBFormofAtnendedandRestatedBrooklynUnionStockOptionAgreementExHIBITCFormofAgreementandPlanofExchangeandMergerbyandamongBLHoldingCorp.,LILCO,LIPAandLIPAAcquisitionCorp.
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tAMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEANDMERGER,datedasofJune26,1997(this"AGREEMENT"),betweenTHEBROOKLYNUNIONGASCOMPANY,aNewYorkcorporation("BrooklynUnion")andLONGISLANDLIGHTINGCOMPANY,aNewYorkcorporation("LILCO").WHEREAS,BrooklynUnionandLILCOhavedeterminedtoengageinabusinesscombinationaspeerfirmsinamergerandabindingshareexchangeandtoformaholdingcompanytomanagetheircombinedbusinesses(the"COMPANY");WHEREAS,BrooklynUnion,LILCOandNYECOCORP.,aNewYorkcompany("NYECO"),enteredintoanAgreementandPlanofExchange,datedasofDecember29,1996(the"ORIGINALAGREEMENT");WHEREAS,BrooklynUnion,LILCOandBUGLILCOHOLDINGCORP.,aNewYorkcorporation("BUGLILCO"),amendedandrestatedtheOriginalAgreementpursuanttoanAmendedandRestatedAgreementandPlanofExchange,datedasofFebruary6,1997(the"FIRSTAMENDEDANDRESTATEDAGREEMENT");WHEREAS,withtheconsentofeachofBrooklynUnionandLILCO,NYECOassignedallofitsrightsandobligationsundertheOriginalAgreementtoBUGLILCO(the"ASSIGNMENT");C"WHEREAS,infurtheranceofabusinesscombinationbyandbetween'BrooklynUnionandLILCO,therespectiveBoardsofDirectorsofBrooklynUnionandLILCOhaveadoptedthisAgreemcntandthetransactionscontemplatedherebyonthetermsandconditionssetforthinthisAgreement;WHEREAS,theBoardofDirectorsofLILCOhasapprovedandLILCOhasexecutedanamendedandrestatedagreementwithBrooklynUnionintheformofEXHIBITA(the"LILCOSTOCKOPTION1AGREEMENT")contemplatingastockoption(the",LILCOSTOCKOPTION")andtheBoardofDirectorsofBrooklynUnionhasapprovedandBrooklynUnionhasexecutedanamendedandrestatedagreementwithLILCOintheformofEXHIBITB(the"BROOKLYNUNIONSTOCKOPTIONAGREEMENT")contemplatingastockoption(the"BROOKLYNUNIONSTOCKOPTION");WHEREAS,BrooklynUnion,LILCOandLONGISLANDPOWERAUTHORITY("LIPA")enteredintoanAgreementinPrinciple,datedasofMarch19,1997,pursuanttowhichLILCOandLIPAcontemplateenteringintoanAgreementandPlanofExchangeandMergersubstantiallyintheformattachedasExhibitChereto(the"L'IPAAGREEMENT");WHEREAS,forfederalincometaxpurposes,'itisintendedthat(i)thepartiesheretowillrecognizenogaino'rloss,(ii)unlesstheLIPAAgreementhasbeenterminated,thestockholdersofLILCOwhoparticipateintheTransactionswillrecognize(excepttotheextentSection1033oftheCode(ashereinafterdefined)isavailableandavailedofbyastockiiolder)gainorlossbothinrespectofstockreceivedandinrespectofanycashtheyreceiveinlieuoffractionalshares,and(iii)theshareholdersofBrooklynUnionwhoparticipateintheTransactionswillnotrecognizegainorloss',ineachcase,'forfederalincometaxpurposesasaresultoftheconsummationoftheTransactions(ashereinafterdefined);WHEREAS,theBoardofDirectorsofBrooklynUnionhasapprovedandBrooklynUnionhasexecutedanamendedandrestatedagreementandplanofexchange,datedasofJune26,1997(the"KEYSPANEXCHANGEAGREEMENT"),withKeySpanEnergyCorporation,aNewYorkcorporationandawhollyownedsubsidiaryofBrooklynUnion("KEYSPAN"),pursuanttowhich,subjecttotheadoptionbytheshareholdersofBrooklynUnionoftheKeySpanExchangeAgreementandcertainotherconditions,includingtheredemptionbyBrooklynUnionofallofitsissuedandoutstandingpreferredstock,KeySpanwillacquirealltheoutstandingsharesofCommonStockofBrooklynUnioninabindingshareexchangeunderSection913oftheNewYorkBusinesstCorporationLaw(the"NYBCL"),inwhicheachshareofCommonStockofBrooklynUnionwillbeexchangedforoneshareofConunonStockofKeySpan,with,theresultthatBrooklynUnionwillbecomeawhollyownedsubsidiaryofKeySpan{suchtransaction,the"KEYSPAN.RESTRUCTURING");andA-1 WHEREAS,thepartiesdesiretoamendandrestatetheFirstAmendedandRestatedAgreeme'nt'asofthedatehereoftorefiecttheAssignment,theLIPAAgreementandtheKeySpanRestructuringandcertainother,technicalchanges;NOWTHEREFORE,inconsiderationofthepremisesandtherepresentations,warranties,covenantsandagreementscontainedherein,thepartieshereto,intendingtobelegallyboundhereby,agreeasfollows:ARTICLEITHETRANSACTIONSSECTIQN1.1THEBINDINGSHAREEXCHANGEANDMERGER.ThisAgreementshallbesubmittedtotheholdersoftheCommonStock,parvalue$5pershare,ofLILCO(the"LILCOCOMMONSTOCK")andtheholdersoftheCommonStock,parvalue$0.33Npershare,ofBrooklynUnion(the"BROOKLYNUNIONCOMMONSTOCK")foradoptioninaccordancewithSection913oftheNYBCL.Theaffirmativevoteoftheholdersofatleasttwo-thirdsoftheissuedandoutstandingLILCOCommonStockandoftheholdersofatleasttwo-thirdsoftheissuedandoutstandingBrooklynUnionCommonStockshallbenecessarytoadoptthisAgreement.UponthetermsandsubjecttotheconditionsofthisAgreement,attheLILCOEffectiveTime(asdefinedinSECTION1.2),theoutstandingsharesofLILCOCommonStockshallbeexchangedfornewlyissuedsharesoftheCommonStock,parvalue$0.01pershare,oftheCompany(the"COMPANYCOMMONSTOCK"and,withrespecttoanyperiodaftertheEffectiveTime,the"COMPANYCOMMONSTOCK")asprovidedinSECTION2.1(the"SHAREEXCHANGE"),inaccordancewithSection913oftheNYBCLandattheBrooklynUnionEffectiveTime(asdefinedinSECTION1.2),awhollyownedsubsidiaryoftheCompany("MERGERSUB)willbemergedwithandintoBrooklynUnion(the"MERGER")inaccordancewithSection902oftheNYBCL,pursuanttowhicheachoutstandingshareofBrooklynUnionCommonStockshallautomaticallybeconvertedintooneshareofCompanyCommonStockasprovidedinSECTION2.1(the"MERGER"and,togetherwiththeShareExchange,the"TRANSACTIONS").AsaresultoftheMerger,MergerSubwillceasetoexistandBrooklynUnionwillsurvivetheMergerasthesurvivingcorporation(the"SURVIVINGCORPORATION")."SEcTioN1.2EFFECTIVETIME.OntheClosingDate(asdefinedinSECTION3.1),acertificateofexchangecomplyingwiththerequirementsoftheNYBCLshallbeexecutedbyLILCOandtheCompanyandacertificateofmergercomplyingwiththerequirementsoftheNYBCLshallbeexecutedbyBrooklynUnionandMergerSub,andeachshallbefiledbythepartieswiththeSecretaryofStateoftheStateof,NewYork.TheLILCOBindingShareExchangeshallbecomeeffectiveatthetimespecifiedinthecertificateofexchange,withrespecttotheLILCOBindingShareExchange(the"LILCOEFFECTIVETIME")andtheMergershallbecomeeffectiveatthetimespecifiedinthecertificateofmergerfiledwithrespecttotheMerger(the"BROOKLYNUNIONEFFECTIVETIME")whichspecifiedtimesshallbecontemporaneous(the"EFFECTIVETIME");PROVIDED,thattheBrooklynUnionEffectiveTimeshallbelaterthantheLILCOEffectiveTimeandallreferencestdtheEffectiveTimehereinshallincantheBrooklynUnionEffectiveTime.ARTICLEIITREATMENTOESHARESSEcTIoN2.1EFFECTONCAPITALSTOCK(a)AttheBrooklynUnionEffectiveTime,byvirtueoftheMergerandwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnion,theCompanyorMergerSub:(i)TREATMENTOFBROOKLYNUNIONCOMMONSTOCK.EachshareofBrooklynUnionCommonStockissuedandoutstandingimmediatelypriortotheBrooklynUnionEffectiveTime,otherthanA-2 DissentingShares(asdefinedinSECTION2.2),shallbeconvertedintotherighttoreceiveonefullypaidand,subjecttoSection630oftheNYBCL,nonassessableshareofCompanyCommonStock.AttheBrooklynUnionEffectiveTime,allsuchsharesofBrooklynUnionCommonStockshallnolongerbeoutstanding,andshallautomaticallybecancelledandretiredandceasetoexist,andeachholderofacertificaterepresentinganysuchsharesshallceasetohaveanyrightswithrespectthereto,excepttherighttoreceivethesharesofCompanyCommonStocktobeissuedinconsiderationthereforuponthesurrenderofsuchcertificateinaccordancewithSECTION2.3,withinterest.(ii)TREATMENTOF'ERGERSUBCOMMONSTOCK.EachshareofcommonstockofMergerSub,parvalue$.01pershare,issuedandoutstandingimmediatelypriortotheBrooklynUnionEffectiveTimeshallbeconvertedintooneshareofcommonstock,$0.33Npershare",oftheSurvivingCorporation.(b)SubjecttoSECTION7.18(b),attheLILCOEffectiveTime,byvirtueoftheShareExchangeandwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnionortheCompany:(i)TREATMENTOFLILCOCOMMONSTOCK.gachissuedandoutstandingshareofLILCOCommonStock,otherthanDissentingShares,shallbeexchangedfor0.803(the"ORIGINALRATIO")fullypaidand,subjecttoSection630oftheNYBCL,nonassessablesharesofCompanyCommonStock;PROVIDEDthatiftheLIPAAgreementhasnotbeenterminatedbutthetransactionscontemplatedtherebywillnotbeconsummatedcontemporaneouslywiththeconsummationofthetransactionscontemplatedhereby,theneachissuedandoutstandingshareofLILCOCommonStock,otherthanDissentingShares,shallbeexchangedfor0.803fullypaidand,subjecttoSection630oftheNYBCL,nonassessablesharesofCompanyCommonStock,andtheCompanyshallcausetheretobereservedoutofitsauthorizedbutunissuedsharesofCompanyCommonStocksuchnumberofsharesasisequalto0.077multipliedbythenumberofsharesofLILCOCommonStockoutstanding,otherthanDissentingShares,attheLILCOEffectiveTime;andifthetransactionscontemplatedbytheLIPAAgreementareconsummatedwithintwoyearsoftheLILCOEffectiveTime,thenthereshallbeissuedtopersonswhowereholdersofrecordofLILCOCommonStockattheLILCOEffectiveTime,0.077sharesofCompanyCommonStockinrespectofeachshareofLILCOCommonStock,otherthanDissentingShares,thathadbeenheldbythemofrecordattheLILCOEffective'Time.ThepotentialissuanceofsliaresofCompanyCommonStockpursuanttothelastprovisooftheprecedingsentenceisreferredtohereinasthe"ContingentIssuance".Thetermsofexchangedescribedintheprovisointhesentenceprecedingtheprecedingsentencearereferredtohereinasthe"LIPARATIO"(0.880),'andtheOriginalRatioandtheLIPARatioai;ereferredtohereintogetherasthe"RATIOS".Uponsuchexchange,theCompanyshallbecometheownerofeachshareofLILCOCommonStocktobesoexchangedandallsuchsharesofLILCOCommonStockshallbedeemedtohavebeenexchangedfortheapplicablenumberofsharesoftheCompanyCommonStock,andeachholderofacertificateformerlyrepresentinganysuchsharesshallceasetohaveanyrightswithrespectthereto,excepttherighttoreceivesharesoftheCompanyCommonStocktobeissuedinconsiderationthereforuponthesurrenderofsuchcertificateinaccordancewithSECTION2.3.(ii)NOCHANGEINLILCOPREFERREDSTOCK.EachissuedandoutstandingsharcofthepreferredstockofLILCOshallbeunchangedasaresultoftheShareExchangeandshallremainoutstandingthereafter.SEcTIQN2.2DISSENTINGSHARES.SharesofLILCOCommonStockorBrooklynUnionCommonStockheldbyanyholderentitledtoreliefasadissentingshareholderunderSection910oftheNYBCL(the"DISSENTINGSHARES")'shallnotbecometherighttoreceiveCompanyCommonStock,butshallbecancelledandconvertedintosuchconsiderationasmaybeduewithrespecttosuchsharespursuanttothetapplicableprovisionsoftheNYBCL,unlessanduntiltherightofsuchholdertoreceivefaircashvalueforsuchDissentingSharesterminatesinaccordancewithSection623oftheNYBCL.IfsuchrightisterminatedotherwisethanbythepurchaseofsuchsharesbyLILCOorBrooklynUnion,thensuchsharesshallceasetobeDissentingSharesandshallrepresenttherighttoreceiveCompanyCommonStock,asprovidedinSECTION2.1.A-3 Seerrox2.3ISSUANCEOFNEWCERTIFICATES(a)DEPOSITWITHEXCHANGEAGENT.AssoonaspracticableaftertheEffectiveTime,theCompanyshalldepositwithsuchbankortrustcompanymutuallyagreeabletoLILCOandBrooklynUnion(the"EXCHANGEAGENT"),certificatesrepresentingsharesofCompanyCommonStockrequiredtoeffecttheissuancesreferredtoinSECTION2.1(or,SECTIONS2.1(a)and7.1((b)iftheTransactionsaretobeconsummatedpursuanttoSECTION7.18(b)).f(b)ISSUANCEPROCEDURES.AssoonaspracticableaftertheEffectiveTime,theExchangeAgentshallmailtoeachholderofrecordofacertificateorcertificates(the,"CERTIFICATES")whichimmediatelypriortotheLILCOEffectiveTimerepresentedoutstandingsharesofLILCOCommonStockorwhichimmediatelypriortotheBrooklynUnionEffectiveTimerepresentedoutstandingsharesofBrooklynUnionCommonStock(the"EXCHANGEDCOMMONSHARES")thatinthecaseofLILCOCommonStockwereexchangedforsharesofCompanyCommonStock(the"COMPANYSHARES")pursuanttoSECTION2.1(b)andinthecaseofBrooklynUnionCommonStockwereconvertedintotherighttoreceiveCompanySharespursuanttoSECTION2.1(a),(i)aletteroftransmittal(whichshallspecifythatdeliveryshallbeeffected,andriskoflossandtitletotheCertificatesshallpass,onlyuponactualdeliveryoftheCertificatestotheExchangeAgent)(the"LETTEROFTRANSMIT'AL")and(ii)instructionsforuseineffectingthesurrenderoftheCertificatesinexchangeforcertificatesrep'resentingCompanyShares.Notwithstandingtheforegoing,iftheTransactionsaretobeconsummatedpursuanttoSECTION7.18(b),thenassoonaspracticableaftertheEffectiveTime,theExchangeAgentshallmailtoeachholderofrecordof(x)aCertificatewhichimmediatelypriortotheLILCOEffectiveTimerepresentedExchangedCommonShares'thatwereexchangedforCompanySharespursuanttoSECTION7.18(b),or(y)aCertificatewhichimmediatelypriortotheBrooklynUnionEffectiveTimerepresentedExchangedCommonSharesthatwereconvertedintheMergerintotherighttoreceiveCompanySharespursuanttoSECTION2.1(a),(i)aLetterofTransmittaland(ii)instructionsforuseineffectingthesurrenderoftheCertificatesinexchangeforcertificatesrepresentingCompanyShares.UponsurrenderofaCcitificatetotheExchangeAgentforexchange(ortosuchotheragentoragentsasmaybeappointedbyagreementofBrooklynUnionandLILCO),togetherwithadulyexecutedletteroftransmittalandsuchotherdocumentsastheExchangeAgentsh'allrequire,theholderofsuchCertificateshallbeentitledtoreceiveacertilicaterepresentingthatnumberofwholeCompanyShareswhichsuchholder"hastherigh'ttoreceivepursuanttotheprovisionsofthisARTICLEII(orSECTIONS2.1(a)and7.18(b)iftheTransactionsaretobeconsummatedpursuanttoSECTION7.18(b)).IntheeventofatransferofownershipofExchangedCommonShareswhichisnotregisteredinthctransferrecordsofL'ILCOorBrooklynUnion,as'"thecasemaybe,acertificaterepresentingthepropernumberofCompanySharesmaybeissuedtoatransfereeiftheCertificaterepresentingsuchExchangedCommonSharesispresentedtotheExchangeAgent,accompaniedbyalldocumentsrequiredtoevidenceandeffectsuchtransferandbyevidencesatisfactorytotheExchangeAgentthatanyapplicablestocktransfertaxeshavebeenpaid.Untilsurrenderedas'contemplatedbythisSECTION2.3,eachCertificateshallbedeemedatanytimeaftertheLILCOEffectiveTimeortheBrooklynUnionEffectiveTime,asthecasemaybe,torepresentonlytherighttoreceiveuponsuchsurrenderthecertificaterepresentingCompanySharesandcashinlieuofanyfractionalsharesofCompanyCommonStockascontemplatedbythisSECTION2.3.(c)DISTRIBUTIONSWITHRESPECTTOUNSURRENDERED'SHARES.No'dividendsorotherdistributionsdeclaredormadeaftertheEffectiveTimewithrespecttoCompanyShareswitharecorddateafter,theEffectiveTimeshallbepaidtotheholderofanyunsurrendcredCertificatewithrespecttotheCompanySharesrepresentedtherebyandnocashpaymentinlieuoffractionalsharesshallbepaidtoanysuchholderpursuanttoSECTION2.3(d)untiltheholderofrecordofsuchCertificateshallsurrendersuchCertificate.Subjecttotheeffectofunclaimedproperty,escheatandotherapplicablclaws,followingsurrenderofanysuchCertificate,thereshallbepaidtotherecordholderofthecertificatesrepresentingwholeCompanySharesissuedinconsiderationtherefor,withoutinterest,(i)atthetimeofsuchsurrender,theamountofanycashpayableinlieuofafractionalshareofCompanyCommonStocktowhichsuchholderisentitledpursuanttoSECTION2.3(d)andtheamountofdividendsorotherdistributionswitharecorddateaftertheEffectiveTimetheretoforepaidwithrespecttosuchwholeCompanySharesand(ii)attheappropriatepaymentdate,theamountofA-4 IHdividendsorotherdistributionswitharecorddateaftertheEffectiveTimebutpriortosurrenderandapaymentdatesubsequent.tosurrenderpayablewithrespecttosuchwholeCompanyShares.(d)NOFRACTIONALSECURITIES.Notwithstanding'any'otherprovisionofthisA'greement,nocertificatesorscriprepresentingfractionalsharesofCompanyCommonStockshallbeissueduponthesurrenderforexchangeofCertificatesandsuchfractionalsharesshallnotentitletheownerthereoftovoteortoanyotherrightsofaholderofCompanyCommonStock.AspromptlyaspossiblefollowingtheEffectiveTime,theExchangeAgentshalldeterminetheexcessof(i)thenumberoffullsharesofCompanyCommonStockdeliveredtotheExchangeAgentbytheCompanypursuanttoSECTION2.3(a)lessthenumberoffullsharesofCompanyCommonStocktobedistributedtotheholdersofBrooklynUnionCommonStockpursuanttoSECTION2.1(a)'ver(ii)thenumberoffullsharesofCompanyCommonStocktobedistributedtotheholdersofLILCOCommonStockpursuanttoSECTION2.1(c)orSECTION7.18(b)(suchexcessbeinghereinreferredtoasthe"EXCESSSHARES").AssoonaftertheEffectiveDateaspracticable,theExchangeAgent,asagentfortheholdersofLILCOCommonStock,shallselltheExcessSharesatthe'thenprevailingpricesontheNewYorkStockExchange(the"NYSE")throughoneorm'rememberfirms'oftheNYSEinround'lotstotheextentpracticable.LILCOshallpay,orcausetobepaid,allcommissions,transfertaxesand'otherout-of-pockettransactionscosts,includingtheexpensesandcompensationoftheExchangeAgentincurredinconnectionwithsuchsaleoftheExcessShares.UntiltheproceedsofsuchsaleorsaleshavebeendistributedtotheholdersofLILCOCommonStock,theExchangeAgentshallholdsuchproceedsintrustfortheholdersofLILCOCommonStock.TheExchangeAgentshalldeterminetheportionoftheproceedsfromthesaleoftheExcessShares(the"EXCESSSHARESPROCEEDS")towhicheachholderofLILCOCommonStockisentitled,ifany,bymultiplyingtheamountoftheExcessSharesProceedsbyafraction,thenumeratorofwhichistheamountofthefractionalshareintereststowhichsuchholderofLILCOCommonStockisentitled,andthedenominatorofwhichistheaggregateamountoffractionalshareinteresttowhichalloftheholdersofLILCOCommonStockareentitled.AssoonaspracticableafterthesaleoftheExcessSharesandthedeterminationoftheamountofcash,ifany,tobepaidtoeachholderofLILCOCommonStockinlieuofany,fractionalshareinterests,theExchangeAgentshalldistributesuchamountstotheholdersofLILCO"CommonStockentitledtheretoandwhohavetheretoforedeliveredCertificatesforLILCOCommonStockpursuanttothisARTICLEII.CashisbeingpaidinlieuoffractionalsharespursuanttothisSECTION2.1(d)fortheconvenienceofthepartiesandisnotaseparatelybargainedforconsideration.(e)CLOSINGOFTRANSFERBOOKS.FromandaftertheLILCOEffectiveTimeandtheBrooklynUnionEffectiveTime,thecommonstocktransferbooksofLILCOandBrooklynUnion,respectively,shallbeclosedandnotransferofanyLILCOCommonStockorBrooklynUnionCommonStockshallthereafterbemade.If,aftertheLILCOEffectiveTimeortheBrooklynUnionEffectiveTime,asthecasemaybe,CertificatesarepresentedtotheCompany,theyshallbecancelledandexchangedforcertificatesrepresentingtheappropriatenumberofCompanyShares,asthecasemaybe,asprovidedinthisSECTION2.3.(f)TERMINATIONOFEXCHANGEAGENT.AnycertificatesrepresentingCompanySharesdepositedwiththeExchangeAgentpursuanttoSECTION2.3(a)andnotexchangedwithinoneyearaftertheEffectiveTimepursuanttothisSECTION2.3shallbereturnedbytheExchangeAgenttotheCompany,whichshallthereafteractasExchangeAgent.AllfundshefdbytheExchangeAgentforpaymenttotheholdersofunsurrenderedCertificatesandunclaimedattheendofoneyearfromtheEffectiveTimeshall,bereturnedtotheCompany,afterwhichtimeanyh'olderofunsurrenderedCertificatesshalllookasageneralcreditoronlytotheCompanyforpaymentofsuchfundstowhichsuchholdermay'bedue,subjecttoapplicablelaw.TheCompanyshallnotbeliabletoanypersonforsuchsharesorfundsdeliveredtoapublicofficialpursuanttoanyapplicableabandonedproperty,escheatorsimilarlaw.(g)PROCEDURESAPPLICABLETOSHARESISSUEDPURSUANTTOTHECONTINGENTISSUANCE.IfthetransactionscontemplatedbytheLIPAAgreementareconsummatedwithintwoyearsoftheLILCOEffectiveTime,thentheExchange.AgentshallmailtoeachholderofrecordofCertificateswhichimmediatelypriortotheLILCOEffectiveTimerepresentedoutstandingsharesofLILCOCommonStockthatwereexchangedforCompanySharesincompliancewiththeissuanceproceduresdescribedinSECTION2.3(b)certificatesforthenumberofwholeCompanyShareswhichsuchholderhastherighttoreceivepursuanttotheA-5 ContingentIssuance.NodividendsorotherdistributionsdeclaredormadeaftertheLILCOEffectiveTimewithrespecttoCompanyShareswitharecorddateaftertheLILCOEffectiveTimeandpriortotheconsummationofthetransactionscontemplatedbytheLIPAAgreementshallbepaidinrespectofsharestobeissuedpursuanttotheContingentIssuance.TheproceduresdescribedinSECTION2.3(d)withrespecttofractionalsharesshallbeemployedwithrespecttosharestobeissuedpursuanttotheContingentIssuance.ARTICLEIIITHECLOSINGSECTION3.1CLOSING.TheclosingoftheTransactions(the"CLOSING")shalltakeplaceattheofficesofKramer,Levin,Naftalis&Frankel,919ThirdAvenue,NewYork,NewYork,at10:00A.M.,localtime,onthesecondbusinessdayimmediatelyfollowingthedateonwhichthelastoftheconditionssetforthinARTICLEVIIIhereofissatisfiedorwaived;oratsuchothertimeanddateandplaceasBrooklynUnionandLILCOshallmutuallyagree,butinnoeventearlierthanApril1,1998(the"CLOSINGDATE").ARTICLEIVREPRESENTATIONSANDWARRANTIESOFBROOKLYNUNIONBrooklynUnionrepresentsandwarrantstoLILCOasfollows:1SECTIQN4.1ORGANIZATIONANDQUALIFICATION.ExceptassetforthinSection4.1oftheBrooklynUnionDisclosureSchedule(asdefinedinSECTION7.6(ii)),eachofBrooklynUnionandeachoftheBrooklynUnionSubsidiaries(aqdefinedbelow)isacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionofincorporationororganization,hasallrequisitecorporatepowerandauthority,andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetsandpropertiestotheextentowned,leasedandoperatedandtocarryonitsbusinessasitisnowbeingconductedandisdulyqualifiedandingoodstandingtodobusinessineachjurisdictioninwhichthenatureofitsbusinessortheownershiporleasingofitsassetsandpropertiesmakessuchqualificationnecessary.AsusedinthisAgreement,(a)theterm"SUBSIDIARY"ofapersonshallmeananycorporationorother'entity(includingpartnerships,limitedliabilitycompaniesandotherbusinessassociations)ofwhichatleastamajorityoftheoutstandingcapitalstockorothervotingsecuritieshavingvotingpowerunderordinarycircumstancestoelectdirectorsorsimilarmembersofthegoverningbodyofsuchcorporationorentityshallatthetimebeheld,directlyorindirectly,bysuchpersonand(b)theterm"BROOKLYNUNIONSUBSIDIARY"shallmeanaSubsidiaryofBrooklynUnion.SEcTIGN4.2SUBSIDIARIES.Section4.2oftheBrooklynUnionDisclosureSchedulesetsforthadescription;asofDecember29,1996,ofallSubsidiariesandJointVentures(asdefinedherein)ofBrooklynUnion,including(a)thenameofeachsuchentityandBrooklynUnion'sinterestthereinand(b)abriefdescriptionoftheprincipallineorlinesofbusinessconductedbyeachsuchentity.Ex'ceptassetforthinSection4.2oftheBrooklynUnionDisclosureSchedule,noneoftheBrooklynUnionSubsidiariesisa"publicutilitycompany",a"holdingcompany",a"subsidiarycompany"oran"affiliate"ofanypublicutihtycompanywithinthemeaningofSection2(a)(5),2(a)(7),2(a)(8)or2(a)(11)ofthePublicUtilityHoldingCompanyActof1935,asamended(thc"1935ACT"),respectively.ExceptassetforthinSection4.2oftheBrooklynUnionDisclosureSchedule,alloftheissuedandoutstandingsharesofcapitalstockofeachBrooklynUnionSubsidiaryarevalidlyissued,fullypaid,nonassessableandfreeofpreemptiverights,andareowned,directlyorindirectly,byBrooklynUnionfreeandclearofanyliens,claims,encumbrances,securityinterests,equities,chargesandoptionsofanynaturewhatsoeverandtherearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rights.orwarrants;includinganyrightofconversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatinganysuchBrooklynUnionSubsidiarytoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalA-6 sharesofitscapitalstockorobligatingittogrant,extendorenterintoanysuchagreementorcommitment.AsusedinthisAgreement,(a)theterm"JOINTVENTURE"ofapersonshallmeananycorporationorotherentity(includingpartnershipsandotherbusinessassociations)thatisnotaSubsidiaryofsuchperson,inwhichsuchpersonoroneormoreofitsSubsidiariesownsanequityinterestand(b)theterm"BROOKLYNUNIONJOINTVENTURE".shallmeanthoseofthejointventuresofBrooklynUnionoranyBrooklynUnionSubsidiaryidentifiedasaBrooklynUnionJointVentureinSection4.2oftheBrooklynUnionDisclosureSchedule.SEGTtoN4.3CAPITALIZATION.TheauthorizedcapitalstockofBrooklynUnionisassetforthinBrooklynUnion'sAnnualReportonForm10KfortheyearendedSeptember30,1996.AsofthecloseofbusinessonDecember18,1996,there,wereissuedandoutstanding49,993,378sharesofBrooklynUnionCommonStock.AlloftheissuedandoutstandingsharesofthecapitalstockofBrooklynUnionare,andanysharesofBrooklynUnionCommonStockissuedpursuanttotheBrooklynUnionStockOptionAgreementwillbe,validlyissued,fullypaid,nonassessableandfreeofpreemptiverights.ExceptassetforthinSection4.3oftheBrooklynUnionDisclosureSchedule,asofDecember29,1996,therearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatingBrooklynUnionoranyoftheBrooklynUnionSubsidiaries'toissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofthecapitalstockofBrooklynUnion,orobligatingBrooklynUniontogrant,extendorenterintoanysuchagreementorcommitment,otherthanundertheBrooklynUnionStockOptionAgreement.TherearenooutstandingstockappreciationrightsofBrooklynUnionwhichwerenotgrantedintandemwitharelatedstockoptionandnooutstandinglimitedstockappreciationrightsorotherrightstoredeemforcashoptionsorwarrantsofBrooklynUnion.SEGTIQN4.4AUTHORITY;NON;CONTRAVENTION;STATUTORYAPPROVALS;COMPLIANCE.(a)AUTHORITY.BrooklynUnionhasallrequisitepowerandauthoritytoenterintothisAgreemcntandtheBrooklynUnionStockOptionAgreement,and,subjecttotheBrooklynUnionShareholders'pproval(asdefinedinSECTION4.13)andtheBrooklynUnionRequiredStatutoryApprovals(asdefinedinSECTION4.4(c)),toconsummatethetransactionscontemplatedherebyorthereby.Theexecutionan'ddeliveryofthisAgreementandtheBrooklynUnionStockOptionAgreementandtheconsummationby'BrooklynUnionofthetransactionscontemplatedherebyandtherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofBrooklynUnion,subjecttoobtainingtheapplicableBrooklynUnionShareholders'pproval.Each'ofthisAgreementandtheBrooklynUnionStockOptionAgreementhasbeen'ulyandvalidlyexecutedanddeliveredbyBrooklynUnionand,assumingthedueauthorization,executionanddeliveryhereofandthereofbytheothersignatoriesheretoandthereto,constitutesthevalidandbindingobligationofBrooklynUnionenforceableagainstitinaccordancewithitsterms.(b)NON-CONTRAVENTION.ExceptassetforthinSection4.4(b)oftheBrooklynUnionDisclosureSchedule,theexecutionanddeliveryofthisAgreemcntandtheBrooklynUnionStockOptionAgreementbyBrooklynUniondonot,andtheconsummationofthetransactionscontemplatedherebyortherebywillnot,inanymaterialrespect,violate,confiictwith,orresultinamaterialbreachofanyprovisionof,orconstituteamaterialdefault'withorwithoutnoticeorlapseoftimeorboth)under,orresultintheterminationormodificationof,oracceleratetheperformancerequiredby,orresultinarightoftermination,cancellation,oraccelerationofanyobligationorthelossofamaterialbenefitunder,orresultinthecreationofanymateriallien,securityinterest,chargeorencumbranceuponanyofthepropertiesorassetsofBrooklynUnionoranyoftheBrooklynUnionSubsidiariesorBrooklynUnionJointVentures(anysuchviolation,confiict,breach,default,rightoftermination,modification,cancellationoracceleration,lossorcreation,a"VIOLATION"withrespecttoBrooklynUnion,suchtermwhenusedinARTICLEVhavingacorrelativemeaningwithrespecttoLILCO)pursuanttoanyprovisionsof(i)thecertificateofincorporation,by-lawsorsimilargoverningdocumentsofBrooklyn,UnionoranyoftheBrooklynUnionSubsidiariesorthcBrooklynUnionJointVentures,(ii)subjecttoobtainingtheBrooklynUnionRequiredStatutoryApprovalsandthereceiptoftheBrooklynUnionShareholders'pproval,anystatute,law,ordinance,rule,regulation,judgment,decree,order,injunction,writ,permitorlicenseofanyGovernmentalAuthority(asdefinedinSECTION4.4(c))applicabletoBrooklynUnionoranyoftheA-7 BrooklynUnionSubsidiariesortheBrooklynUnionJointVenturesoranyoftheirrespectivepropertiesorassetsor(iii)subjecttoobtainingthethird-partyconsentssetforthinSection4.4(b)oftheBrooklynUnionDisclosureSchedule(the"BROOKLYNUNIONREQUIREDCONSENTS"),anymaterialnote,bond,mortgage,indenture,deedoftrust,license,franchise,permit,concession,contract,leaseorotherinstrument,obligationoragreementofanykindtowhichBrooklynUnionoranyoftheBrooklynUnionSubsidiariesortheBrooklynUnionJointVenturesisapartyorbywhichitoranyofitspropertiesorassetsmaybeboundoraffected.(c)STATUTORYAPPROVALS.Nodeclaration,filingorregistrationwith,ornoticetoorauthorization,consentorapprovalof,anycourt,federal,state,localorforeigngovernmentalorregulatorybody(includingastockexchangeorotherself-regulatorybody)orauthority(each,a"GOVERNMENTALAUTHORITY")isnecessaryfortheexecutionanddeliveryofthisAgreementortheBrooklynUnionStockOptionAgreementbyBrooklynUnionortheconsummationbyBrooklynUnionofthetransactionscontemplatedherebyorthereby,exceptasdescribedinSection4.4(c)oftheBrooklynUnionDisclosureSchedule(the"BROOKLYNUNIONREQUIREDSTATUTORYAPPROVALS",itbeingunderstoodthatreferencesinthisAgreementto"obtaining"suchBrooklynUnionRequiredStatutoryApprovalsshallmeanmakingsuchdeclarations,filingsorregistrations;givingsuchnotices;obtainin'gsuchauthorizations,consentsorapprovals;andhavingsuchwaitingperiodsexpireasarenecessarytoavoidaviolationoflaw).,ftf(d)COMPLIANCE.ExceptassetforthinSection44(d),Section4.10orSection4.11oftheBrooklynUnionDisclosureSchedule,orasdisclosedintheBrooklynUnionSECReports(asdefined'inSECTION4.5)filedprior'toDecember29,1996,neitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiariesnor,totheknowledgeofBrooklynUnion,anyBrooklynUnionJointVentureisinmaterialviolationof,is"underinvestigationwithrespecttoanymaterialviolationof,orhasbeengivennoticeorbeenchargedwithanymaterialviolationof,anylaw,statute,order;rule,regulation,ordinanceorjudgment(including,withoutlimitation,anyapplicableenvironmentallaw,ordinanceorregulation)ofanyGovernmentalAuthority.ExceptassetforthinSection4.4(d)oftheBrooklynUnionDisclosureScheduleorinSection4.11oftheBrooklynUnionDisclosureSchedule,BrooklynUnionandtheBrooklynUnionSubsidiariesandBrooklynUnionJointVentureshaveallpermits,licenses,franchisesandothergovernmentalauthorizations,consentsandapprovalsnecessarytoconducttheirbusinessesaspresentlyconductedinallmaterialrespects.ExceptassetforthinSection4.4(d)oftheBrooklynUnionDisclosureSchedule,BrooklynUnionandeachoftheBrooklynUnionSubsidiariesisnotinmaterialbreachorviolationoforinmaterialdefaultintheperformanceorobservanceofanytermorprovisionof,andnoeventhasoccurredwhich,withlapseoftimeoractionbyathirdparty,couldresultinamaterialdefaultunder,(i)itscertificateofincorporationorby-lawsor(ii)anymaterialcontract,commitmentagreement,indenture,mortgage,loanagreement,note,lease,bond,license,approvalorotherinstrumenttowhichitisapartyorbywhichitisboundortowhichanyofitspropertyissubject.St:crtoN4.5REPORTSANDFINANCIAL,STATEMENTS.ThefilingsrequiredtobemadebyBrooklynUnionandtheBrooklynUnionSubsidiariessinceJanuary1,1994undertheSecuritiesActof1933,asamended(the"SECURITIESACT"),theSecuritiesExchangeActof1934,asamended(the"EXCHANGEACT"),the1935Act,theFederalPowerAct(the"POWERACT"),theAtomicEnergyActandapplicablestatelawsandregulationshavebeenfiledwiththeSecuritiesandExchangeCommission(the"SEC"),theFederalEnergyRegulatoryCommission(the"FERC"),theNuclearRegulatoryCommission("NRC")ortheappropriatestatepublicutilitiescommission,asthecasemaybe,includingallforms,statements,reports,agreements(oralorwritten)andalldocuments,exhibits,amendmentsandsupplementsappertainingthereto,andcomplied,asoftheirrespectivedates,inallmaterialrespectswithallapplicablerequirementsoftheappropriatestatuteandtherulesandregulationsthereunder.BrooklynUnionhasmadeavailabletoLILCOatrueandcompletecopyofeachreport,schedule,registrationstatementanddefinitiveproxystatementfiledbyBrooklynUnionwiththeSECsinceJanuary1,1994(assuchdocumentshavesincethetimeoftheirfilingbeenamended,the"BROOKLYNUNIONSECREPORTS").Asoftheirrespectivedates,theBrooklynUnionSECReportsdidnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactrequiredtobestatedthereinornecessarytomakethestatementstherein,in'lightofthecircumstancesunderwhichtheyweremade,notmisleading.Theauditedconsolidatedfinancialstatements'ndunauditedinterimfinancialstatementsofBrooklynA-8 UnionincludedintheBrooklynUnionSECReports(collectively,the"BROOKLYNUNIONFINANCIALSTATEMENTS")havebeenpreparedinaccordancewithgenerallyacceptedaccountingprinciplesappliedonaconsistentbasis("GAAP")(exceptasmaybeindicatedthereinorinthenotestheretoandexceptwithrespectto,unauditedstatementsaspermittedbyForm10-QoftheSEC)andfairlypresentthefinancialpositionofBrooklynUnionasofthedatesthereofandtheresultsofitsoperationsandcashflowsfortheperiodsthenended,subject,inthecaseoftheunauditedinterimfinancialstatements,tonormal,recurringauditadjustments.True,accurateandcompletecopiesoftheRestatedCertificateofIncorporationandBy-lawsofBrooklynUnion,asineffectonDecember29,1996,areincluded(orincorporatedbyreference)intheBrooklynUnionSECRt:ports.SEcTIQN4.6ABSENCEOFCERTAINCHANGESOREVENTS.ExceptasdisclosedintheBrooklyn,UnionSECReportsfiledpriortoDecember29,1996orassetforthinSection4.6oftheBrooklynUnionDisclosureSchedule,sinceSeptember30,1996,BrooklynUnionandeachoftheBrooklynUnionSubsidiarieshaveconductedtheirbusinessonlyintheordinarycourseofbusinessconsistent,withpastpracticeandtherehasnotbeen,andnofactorconditionexistswhichwouldhaveor,insofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsofBrooklynUnionanditssubsidiariestakenasawhole(a"BROOKLYNUNIONMATERIALADVERSEEFFECT").ISEcTIQN4.7LITIGATION.Exceptasdisclosedin'theBrooklynUnionSECReportsfiledpriortoDecember29,1996orassetforthinSection4.7,Section4.9orSection4.11oftheBrooklynUnionDisclosureSchedule,(i)therearenomaterialclaims,suits,actionsorproceedings,pendingor,totheknowledgeofBrooklynUnion,threatened,norarethere,totheknowledgeof,BrooklynUnion,anymaterialinvestigationsorreviewspendingorthreatened-against,relatingtooraffectingBrooklynUnionoranyoftheBrooklynUnionSubsidiaries,(ii)therehavenotbeenanysignificantdevelopmentssinceSeptember30,1996withrespecttosuchdisclosedclaim's,suits,actions,proceedings,investigationsorreviewsand(iii)therearenomaterialjudgments,decrees,injunctions,rulesorordersofanycourt,governmentaldepartment,commission,agency,instrumentalityorauthorityoranyarbitratorapplicabletoBrooklynUnionoranyoftheBrooklynUnionSubsidiaries.Sacwtox4.8REGISTRATIONSTATEMENTANDPROXYSTATEMENT.NoneoftheinformationsuppliedortobesuppliedbyoronbehalfofBrooklynUnionforinclusionorincorporationbyreferencein(i)theregistrationstatementonFormS-4tobefiledwiththeSECbytheCompanyinconnectionwiththeissuanceofsharesofCompanyCommonStockintheTransactions(the"REGISTRATIONSTATEMENT")will,atthetimetheRegistrationStatementisfiledwiththeSECandatthetimeitbecomeseffectiveundertheSecuritiesAct,containanyuntruestatementofamaterialfactoromittdstateanymaterialfactrequiredtobestatedthereinornecessarytomakethestatementsthereinnotmisleadingand(ii)thejointproxystatement,indefinitiveform,relatingtothemeetingsofBrooklynUnionandLILCO'shareholderstobeheldinconnectionwiththeTransactions(the"PROXYSTATEMENT")willnot,atthedatesmailedtoshareholdersandatthetimesofthemeetingsofshareholderstobeheldinconnectionwiththeTransactions,containanyuntruestatementofamaterialfactoromittostateanymaterialfactrequiredtobestatedthereinornecessaryinorder',tomakethestatementstherein,inlightofthecircumstancesunderwhichtheyaremade,notmisleading.TheRegistrationStatementandtheProxyStatementwillcomplyastoforminallmaterialrespectswiththeprovisionsoftheSecuritiesActandtheExchangeActandtherulesandregulationsthereunder.SEcTIQN.4.9TAXMATTERS.'TAXES",asusedinthisAgreement,meansanyfederal,state,county,localorforeigntaxes,charges,fees,levies,orother'ssessments,includingallnetincome,grossincome,salesanduse,advalorem,transfer,gains,profits,excise,franchise,realandpersonal,property,grossreceipt,capitalstock,production,businessandoccupation,disability,employment,payroll,license,estimated,stamp,customduties,severanceorwithholdingtaxesor,chargesimposedbyanygovernmentalentity,andincludesanyinterestandpenalties(civilorcriminal)onoradditionstoanysuchtaxes."TAXRETURN",asusedinthisAgreement,meansareport,retlirnorotherinformationrequiredtobesuppliedtoagovernmentalentitywithrespecttoTaxesincluding,wherepermittedorrequired,combinedorconsolidatedreturnsforanygroupofentitiesthatincludesBrooklynUnionoranyofitssubsidiaries,orLILCOoranyofitssubsidiaries,asthecasemaybe.A-9 ExceptassetforthinSection4.9oftheBrooklynUnionDisclosureschedule:(a)'FILINGOFTIMELYTAXRETURNS.BrooklynUnionandeachoftheBrooklynUnionSubsidiarieshavefiled(ortherehasbeenfiledonitsbehalf)allmaterialTaxReturnsrequiredtobefiledbyeachofthemunderapplicablelaw.AllsuchTaxReturnswereandareinallmaterialrespectstrue,completeandcorrectandfiledonatimelybasis.(b)PAYMENTOFTAXES.BrooklynUnion,andeachoftheBrooklynUnionSubsidiarieshave,withinthetimeandinthemannerprescribedbylaw,paidallTaxesthatarecurrentlydueandpayableexceptforthosecontestedingoodfaithandforwhichadequatereserveshavebeentaken.(c)TAXRESERVES.BrooklynUnionandtheBrooklynUnionSubsidiarieshaveestablishedontheirbooksandrecordsreservesadequatetopayallTaxesandreservesfordeferredincometaxesinaccoidancewithGAAP.(d)TAXLIENS.TherearenoTaxliensuponthe.assetsofBrooklynUniono'ranyoftheBrooklyn'UnionSubsidiariesexceptliensforTaxesnotyetdue.(e)WITHHOLDINGTAXES.BrooklynUnionandeachoftheBrooklynUnionSubsidiarieshavecompliedinallmaterialrespectswiththeprovisionsoftheInternalRevenueCodeof1986,asamended(the"CODE")relatingtothewithholdingofTaxes,aswellassimilarprovisionsunderanyotherlaws,andhave,withinthetimeandinthemannerprescribedbylaw,withheldfromemployeewagesandpaidovertothepropergovernmentalauthoritiesallamountsrequired.(1)EXTENSIONSOFTIMEFORFILINGTAXRETURNS.NeitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasrequestedanyextensionoftimewithinwhichtofileanyTaxReturn,whichTaxReturnhasnotsincebeenfiled.(g)WAIVERSOFSTATUTEOFLIMITATIONS.NeitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasexecutedanyoutstandingwaiversorcomparableconsentsregardingtheapplicationofthestatuteoflimitationswithrespecttoanyTaxesorTaxReturns.(h)EXPIRATIONOFSTATUTEOFLIMITATIONS.ThestatuteoflimitationsfortheassessmentofallTaxeshasexpiredforallapplicableTaxReturnsofBrooklynUnionandeachoftheBrooklynUnionSubsidiariesorthoseTaxReturnshavebeenexaminedbytheappropriatetaxingauthoritiesforallperiodsthroughDecember29,1996,andnodeficiencyforanyTaxeshasbeenproposed,assertedorassessedagainstBrooklynUnionoranyoftheBrooklynUnionSubsidiariesthathasnotbeenresolvedandpaidinfull.(i)AUDIT,ADMINISTRATIVEANDCOURTPROCEEDINGS.NoauditsorotheradministrativeproceedingsorcourtproceedingsarepresentlypendingwithregardtoanyTaxesorTaxReturnsofBrooklynUnionoranyoftheBrooklynUnionSubsidiaries.(j)POWERSOFATI'ORNEY.NopowerofattorneycurrentlyinforcehasbeengrantedbyBrooklynUnionoranyoftheBrooklynUnionSubsidiariesconcerninganyTaxmatter.(k)TAXRULINGS.NeitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasreceivedaTaxRuling(asdefinedbelow)orenteredintoaClosingAgreement(asdefinedbelow)withanytaxingauthoritythatwouldhaveacontinuingadverseeffectaftertheClosingDate."TAXRULING",asusedinthisAgreement,shallmeanawrittenrulingofataxingauthorityrelatingtoTaxes."CLOSINGAGREEMENT",asusedinthisAgreement,shallmeanawrittenandlegallybindingagreementwithataxingauthorityrelatingtoTaxes.(1)AVAILABILITYOFTAXRETURNS.BrooklynUnionhasmadeavailabletoLILCOcompleteandaccuratecopiesof(i)allTaxReturns,andanyamendmentsthereto,filedbyBrooklynUnionoranyoftheBrooklynUnion'Subsidiaries,(ii)allauditreportsreceivedfromanytaxingauthority'elatingtoanyTaxReturnfiledbyBrooklynUnionoranyoftheBrooklynUnionSubsidiariesand(iii)anyClosingAgreementsenteredintobyBrooklynUnionoranyoftheBrooklynUnionSubsidiarieswithanytaxingauthority.
0(m)TAXSHARINGAGREEMENTS.NeitherBrooklynUnionnoranyBrooklynUnionSubsidiaryisapartytoanyagreementrelatingtoallocatingorsharingofincomeTaxes.(n)CODESECTION280G.NeitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiariesisapartytoanyagreement,contract,orarrangementthatcouldresult,onaccountofthetransactionscontemplatedhereunder,separatelyorintheaggregate,inthepaymentofany"excessparachutepayments"withinthemeaningofSection280GoftheCode.(o)LIABILITYFOROTHERS.NoneofBrooklynUnionoranyoftheBrooklynUnionSubsidiarieshasanyliabilityforTaxesofanypersonotherthanBrooklynUnionandtheBrooklynUnionSubsidiaries(i)underTreasuryRegulationsSection1.1502-6(oranysimilarprovisionofstate,localorforeignlaw)asatransfereeorsuccessor,(ii)bycontract,or(iii)otherwise.SEGTIQN4.10EMPLOYEEMATTERS;ERISA.ExceptassctforthinSection4.10oftheBrooklynUnion'isclosureSchedule:(a)BENEFITPLANS.Section4.10(a)oftheBrooklynUnionDisclosureSchedulecontainsatrueandcompletelistofeachemployeebenefitplancoveringemployees,formeremployeesordirectorsofBrooklynUnionandeachoftheBrooklynUnionSubsidiariesortheirbeneficiaries,orprovidingbenefitstosuchpersonsinrespectofservicesprovidedtoanysuchentity,including,butnotlimitedto,anyemployeebenefitplanswithinthemeaningofSection3(3)oftheEmployeeRetirementIncomeSecurityActof1974,asamended("ERISA")andanyseveranceorchangeincontrolagreement(collectively,the"BROOKLYNUNIONBENEFITPLANS").ForthepurposesofthisSECTION4,10only,theternl"BrooklynUnion"shallbedeemedtoincludethepredecessorsofsuchcompany.(b)CONTRIBUTIONS.AllmaterialcontributionsandotherpaymentsrequiredtobemadebyBrooklynUnionoranyoftheBrooklynUnionSubsidiariestoanyBrooklynUnionBenefitPlan(ortoanypersonpursuanttothetermsthereof)havebeenmadeortheamountofsuchpaymentorcontributionobligationhasbeenrefiectedintheBrooklynUnionFinancialStatements.(c)QUALIFICATION;COMPLIANCE.EachoftheBrooklynUnionBenefitPlansintendedtobe"qualified"withinthemeaningofSection401(a)oftheCodehasbeendeterminedbytheIRStobesoqualified,and,tothebestknowledgeofBrooklynUnion,nocircumsta'ncesexistthatarereasonablyexpectedbyBrooklynUniontoresultin'therevocationofanysuchdetertnination.BrooklynUnionisincomplianceinallmaterialrespectswith,andeachoftheBrooklynUnionBenefitPlansisandhasbeenoperatedinallmaterialrespectsincompliancewith,allapplicablelaws,rulesandregulationsgoverningsuchplan,including,withoutlimitation,ERISAandtheCode,EachBrooklynUnionBenefitPlanintendedtoprovideforthe,deferralofincome,thereductionofsalaryorothercompensation,ortoaffordotherincometaxbenefits,complieswiththerequirementsofthcapplicableprovisionsoftheCodeorotherlaws,rulesandregulationsrequiredtoprovidesuchincometaxbenefits.(d)LIABILITIES,WithrespecttotheBrooklynUnionBenefitPlans,individuallyandintheaggregate,noeventhasoccurred,and,tothebestknowledgeofBrooklynUnion,theredoesnotnowexistanyconditionorsetofcircumstances,thatcouldsubjectBrooklynUnionoranyofthcBrooklynUnionSubsidiariestoanymaterialliabilityarisingundertheCode,ERISAoranyotherapplicablelaw(including,withoutlimitation,anyliabilitytoanysuch'planorthePensionBenefitGuarantyCorporation(the"PBGC,")),orunderanyindemnityagreementtowhichBrooklynUnionisaparty,excludingliabilityforbenefitclaimsandfundingobligations,payablcintheordinarycourse.(e)WELFAREPLANS.NoneoftheBrooklynUnionBenefitPlansthatAre"welfareplans",withinthemeaningofSection3(1)ofERISA,providesforanyretireebenefits,otherthancontinuationcoveragerequiredtobeprovidedunderSection4980BoftheCodeorPart6ofTitleIofERISA.(I)DOCUMENTSMADEAVAILABLE.BrooklynUnionhasmadeavailabletoLILCOatrueandcorrectcopyofeachcollectivebargainingagreementtowhichBrooklynUnionoranyoftheBrooklynUnionSubsidiariesisapartyorunderwhichBrooklynUnionoranyoftheBrooklynUnionSubsidiaries hasobligationsand,withrespecttoeachBrooklynUnionBenefitPlan,whereapplicable,(i)suchplanandsummaryplandescription,(ii)themostrecentannualreportfiledwiththeIRS,(iii)eachrelatedtrustagreement,insurancecontract,serviceproviderorinvestmentmanagementagreement(includingallamendmentstoeachsuchdocument),(iv)themostrecentdeterminationoftheIRSwithrespecttothequalifiedstatusofsuchBrooklynUnionBenefitPlan,and(v)themostrecentactuarialreportorvaluation.(g)PAYMENTSRESULTINGFROMTHETRANSACTIONS.(i)TheconsummationorannouncementofanytransactioncontemplatedbythisAgreementwillnot(eitheraloneorupontheoccurrenceofanyadditionalorfurtheractsorevents)resultinany(A)payment(whetherofseverancepayorotheovise)becomingduefromBrooklynUnionoranyoftheBrooklynUnionSubsidiariestoanyofficer,employee,formeremployeeordirectorthereofortothetrusteeunderany"rabbitrust"orsimilararrangement,or(B)benefitunderanyBrooklynUnionBenefitFlanbeingestablishedorbecomingaccelerated,vestedorpayableand(ii)neitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiariesisapartyto(A)anymanagement,employment,deferredcompensation,severance(includinganypayment,rightorbenefitresultingfromachangeincontrol),bonusorothercontractforpersonalserviceswithanyofficer,'directororemployee,(B)anyconsultingcontractwithanypersonwhopriortoenteringintosuch"contractwas'directororofficerofBrooklynUnion,or(C)anyplan,agreement,'rrangementorundersta'ndingsimilartoanyoftheforegoing.4(h)LABORAGREEMENTS.AsofDecember29,1996,exceptassetforthinSection4.10(h)oftheBrooklynUnionDisclosureScheduleorin.theBrooklynUnionSECReportsfiledpriortoDecember29,1996,neitherBrooklyn'UnionnoranyoftheBrooklynUnionSubsidiariesisapartytoanycollectivebargainingagreementorotherlaboragreementwithanyunionorlabororganization.TothebestknowledgeofBrooklynUnion,asofDecember29,1996,exceptassetforthinSection4.10(h)oftheBrooklynUnionDisclosureSchedule,thereisnocurrentunionrepresentationquestioninvolvingemployeesofBrooklyn"UnionoranyoftheBrooklynUnionSubsidiaries,nordoesBrooklynUnionknowofanyactivityor'proceedingofanylabororganization(orrepresentativethereof)oremployeegrouptoorganizeanysuchemployees.ExceptasdisclosedintheBrooklynUnionSECReportsfiledpriortoDecember29,1996orinSection4.10(h)oftheBrooklynUnionDisclosureSchedule;(i)thereisnounfairlaborpractice,employmentdiscriminationorothermaterialcomplaintagainstBrooklynOnionoranyoftheBrooklynUnionSubsidiariespending,ortothebestknowledgeofBrooklynUnion,threatened,(ii)thereisnostrikeorlockoutormaterialdispute,slowdownorworkstoppagepending,ortothebestknowledgeofBrooklynUnion,threatened,againstorinvolvingBrooklynUnion,and(iii)thereisnoproceeding,claim,suit,actionorgovernmentalinvestigationpendingor,tothebestknowledgeofBrooklynUnion,threatened,inrespectofwhichanydirector,officer,employeeoragentofBrooklynUnionoranyoftheBrooklynUnionSubsidiariesisormaybeentitledtoclaimindemnificationfromBrooklynUnionorsuch,BrooklynUnionSubsidiarypursuanttotheirrespectivecertificatesofincorporationorby-lawsorasprovidedintheindemnificationagreementslistedinSection4.10(h)oftheBrooklynUnionDisclosureSchedule,SEGTIQN4.11ENVIRONMENTALPROTECTION.ExceptassetforthinSection4.11oftheBrooklynUnionDisclosureScheduleorintheBrooklynUnionSECReportsfifedpriortoDecember29,1996:(a)COMPLIANCE.BrooklynUnionandeachoftheBrooklynUnionSubsidiariesisinmaterialcompliancewithallapplicableEnvironmentalLaws(asde'finedinSECTION4.11(g)(ii));andneitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasreceivedanycommunication(writtenororal),fromanypersonorGovernmentalAuthoritythatallegesthatBrooklynUnionoranyoftheBrooklynUnionSubsidiariesisnotinsuchcompliancewithapplicableEnvironmentalLaws.(b)ENVIRONMENTALPERMITS.BrooklynUnionandeachoftheBrooklynUnior'ubsidiarieshasobtainedorhasappliedforallmaterialenvironmentaf,healthandsafetypermitsandgovernmentalauthorizations(collectively,the"ENVIRONMENTALPERMITS")necessaryfortheconstructionoftheirfacilitiesortheconductoftheiroperations,andallsuchEnvironmentalPermitsareingoodstandingor,whereapplicable,arenewalapplicationhasbeentimelyfiledandispending-agencyapproval,andBrooklyn UnionandtheBrooklynUnionSubsidiariesareinmaterialcompliancewithalltermsandconditionsoftheEnvironmentalPermits.(c)ENVIRONMENTALCLAIMS.TothebestknowledgeofBrooklynUnion,thereisnomaterialEnvironmentalClaim(asdefinedinSECTION4.11(g)(i))pending(i)against'BrooklynUnionoranyoftheBrooklynUnionSubsidiariesorBrooklynUnionJointVentures,(ii)againstanypersonorentitywhoseliabilityforanyEnvironmentalClaimBrooklynUnionoranyoftheBrooklynUnionSubsidiarieshasormayhaveretainedorassumedeithercontractualfyorbyoperationoflaw,or(iii)againstanyrealorpersonalpropertyoroperationswhichBrooklynUnionoranyoftheBrooklynUnionSubsidiariesowns,leasesormanages,inwholeorinpart.(d)RELEASES.BrooklynUnionhasnoknowledgeofanymaterialReleases(asdefinedinSECTION4.11(g)(iv))ofanyHazardousMaterial(asdefinedinSECTION4.11(g)(iii))thatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaimagainstBrooklynUnionoranyoftheBrooklynUnionSubsidiaries,oragainstanypersonorentitywhoseliabilityforanymaterialEnvironmentalClaimBrooklynUnionoranyoftheBrooklynUnionSubsidiarieshasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw.(e)PREDECESSORS.BrooklynUnionhasnoknowledge,withrespecttoanypredecessorofBrooklynUnionoranyoftheBrooklynUnionSubsidiaries,ofanymaterialEnvironmentalClaimpendingorthreatened,orofanyReleaseofHazardousMaterialsthatwouldbereasonablylikelytoforinthebasisofanymaterialEnvironmentalClaim.(I)DISCLOSURE.ToBrooklynUnion'sbestknowledge,BrooklynUnionhasdisclosedtoLILCOallmaterialfactswhichBrooklynUnionreasonablybelievesformthebasisofamaterialEnvironmentalClaimarisingfrom(i)thecostofBrooklynUnionpollutioncontrolequipmentcurrentlyrequiredorknowntoberequiredinthefuture;(ii)currentBrooklynUnionremediationcostsorBrooklynUnionremediationcostsknowntoberequiredinthefuture;or(iii)anyotherenvironmentalmatteraffectingBrooklynUnion.(g)AsusedinthisAgreement:(i)"ENVIRONMENTALCLAIM"meansanyandalladministrative,regulatoryorjudicialactions,suits,demands,demandletters,directives,claims,liens,investigations,proceedingsornoticesofnoncomplianceorviolation(writtenororal)byanypersonorentity(includinganyGovernmentalAuthority)allegingpotentialliability(including,withoutlimitation,potentialresponsibilityfororliabilityforenforcement,investigatorycosts,cleanupcosts,governmentalresponsecosts,removalcosts,remedialcosts,naturalresourcesdamages,propertydamages,personalinjuriesorpenalties)arisingoutof,basedonorresultingfrom(A)thepresence,orReleaseorthreatenedReleaseintotheenvironment,ofanyHazardousMaterialsatanylocation,whetherornotowned,operated,leasedormanagedbyBrooklynUnionoranyoftheBrooklynUnionSubsidiariesorBrooklynUnionJointVentures(forpurposesofthisSECTION4.11),orbyLILCOoranyoftheLILCOSubsidiariesorLILCOJointVentures(forpurposesofSECTION5.11);or(B)circumstancesformingthebasisofanyviolation,orallegedviolation,ofanyEnvironmentalLaw;or(C)anyandallclaimsbyanythirdpartyseekingdamages,contribution,indemnification,costrecovery,compensationorinjunctivereliefresultingfromthepresenceorReleaseofanyHazardousMaterials.(ii)"ENVIRONMENTALLAWS"meansallfederal,state,locallaws,rulesandregulationsrelatingtopollution,theenvironment(including,withoutlimitation,ambientair,surfacewater',groundwater,landsurfaceorsubsurfacestrata)orprotectionofhumanhealthasitrelatestotheenvironmentincluding,withoutlimitation,lawsandregulationsrelatingtoRelcascsorthreatenedReleasesofHazardousMaterials,orotherwiserelatingtothemanufacture,processing,distribution,use,treatment,storage,disposal,transportorhandlingofHazardousMaterials.(iii)"HAZARDOUSMATERIALS"means(a)anypetroleumorpetroleumproducts,radioactivematerials,asbestosinanyformthatisorcouldbecomefriable,ureafortnaldehydefoaminsulation,andtransformersorotherequipmentthatcontaindielectricQuidcontainingpolychlorinated1A-13 biphenyls("PCBs");and(b)anychemicals,materialsorsubstanceswhicharenowdefinedasorincludedinthedefinitionof"hazardoussubstances","hazardouswastes","hazardousmaterials","extremelyhazardouswastes","restrictedhazardouswastes","toxicsubstances","toxicpollutants"-,orwordsofsimilarimport,underanyEnvi'ronmentalLaw;and(c)anyotherchemical,'material,substanceorwaste,exposuretowhichisnowprohibited,limitedorregulatedunderanyEnvironmentalLawin'ajurisdictioninwhichBrooklynUnionoranyoftheBrooklynUnion,SubsidiariesorBrooklynUnionJointVenturesoperates(forpurposesofthisSECTION4.11)orinwhichLILCOoranyof,theLILCOSubsidiariesorLILCOJointVenturesoperates(forpurposesofSECTION5.11).(iv)"RELEASE"meansanyrelease,spill,emission,leaking,injection,deposit,disposal,discharge,dispersal,leachingormigrationintotheatmosphere,soil,surfacewater,groundwateror,property.Secnow4.12REGULATIONASAUTILITY.ExceptassetforthinSection4.12oftheBrooklynUnionDisclosureSchedule,neitherBrooklynUnionnorany"subsidiarycompany"or"affiliate"(assuchtermsaredefinedinthe1935Act)ofBrooklynUnionissubjecttoregulationasapublicutilityorpublicservicecompany(orsimilardesignation)byanystateintheUnitedStatesotherthanNewYorkoranyforeigncountry.kSEGTlON4.13VOTEREQUIRED.TheadoptionofthisAgreementbytwo-thirdsofthevotesentitledtobecastbyallholdersofBrooklynUnionCommonStock(the"BROOKLYNUNIONSHAREHOLDERS'PPROVAL")istheonlyvoteoftheholdersofanyclassorseriesofthecapitalstockofBrooklynUnionoranyofitssubsidiariesrequiredtoadoptthisAgreementandtheothertransactionscontemplatedhereby.SEcI'ION4.14ACCOUNTINGMAXI'ERS.NeitherBrooklynUnionnor,toBrooklynUnion'sbestknowledge,anyofitsaffiliateshas'takenoragreedtotakeanyactionthatwouldpreventtheCompanyfromaccountingforthetransactionstobeeffectedpursuanttothisAgreementasapoolingofinterestsinaccordancewithGAAP.AsusedinthisAgreemcnt(exceptasspecificallyotherwisedefined),theterm"AFFILIATE",exceptwhereotherwisedefinedherein,shallmean,astoanyperson,anyotherpersonwhichdirectlyorindirectlycontrols,orisundercommoncontrolwith,oriscontrolledby,suchperson.Asusedinthisdefinition,"CONTROL"(including,withitscorrelativemeanings,"controlledby"and"undercommoncontrolwith")shallmeanpossession,directlyorindirectly,ofpowertodirectorcausethedirectionofmanagementorpolicies(whetherthroughownershipofsecuritiesorpartnershiporotherownershipinterests,bycontractorotherwise).SEcl'lON4.15APPLICABILITYOFCERTAINPROVISIONSOFLAW.AssumingtherepresentationandwarrantyofLILCOmadeinSECTION5.18'iscorrect,noneofthebusinesscombinationprovisionsofSection912oftheNYBCLoranysimilarprovisionsoftheNYBCL(or,tothebestknowledgeofBrooklynUnion,anyothersimilarstatestatute)ortheRestatedCertificateofIncorporationorby-lawsofBrooklynUnion,areapplicabletothetransactionscontemplatedbythisAgreement,includingthegrantingorexerciseoftheBrooklynUnionStockOption(exceptassetforthinSection4.15oftheBrooklynUnionDisclosureSchedule).'rcrtoN4.16OPINIONOFFINANCIALADVISOR.BrooklynUnionhasreceivedtheopinionofMerrillLynch,Pierce,Penner&SmithIncorporated("MERRILLLYNCH"),datedDecember29,1996,totheeffectthat,asofthedatethereof,theOriginalRatioisfairfromafinancialpointofviewtotheholdersofBrooklynUnionCommonStock,andBrooklynUnionhasreceivedtheopinionofMerrillLynchdatedJune27,1997,totheeffectthat,asofthedatethereof,theLIPARatio(asdefinedbelow)isfairfromafinancialpointofviewtotheholdersofBrooklyn,UnionCommonStock.Srcvtow4.17INSURANCE.ExceptassetforthinSection4.17oftheBrooklynUnionDisclosureSchedule,BrooklynUnionandeachoftheBrooklynUnionSubsidiariesis,andhasbeencontinuouslysinceJanuary1,1991,insuredwithfinanciallyresponsibleinsurersinsuchamountsandagainstsuchrisksandlossesasarecustomaryinallmaterialrespectsforcompaniesconductingthebusinessasconductedbyBrooklynUnionandtheBrooklynUnionSubsidiariesduringsuchtimeperiod.ExceptassetforthinSection4.17oftheBrooklynA-14 1UnionDisclosureSchedule,neitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasreceivedanynoticeofcancellationorterminationwithrespecttoanymaterialinsurancepolicyofBrooklynUnionoranyoftheBrooklynUnionSubsidiaries.TheinsurancepoliciesofBrooklynUnionandeachoftheBrooklynUnionSubsidiariesarevalidandenforceablepoliciesinallmaterialrespects.SEcl'IQN4.18OWNERSHIPOFLILCOCOMMONSTOCK.ExceptpursuanttothetermsoftheLILCOStockOptionAgreement,BrooklynUniondoesnot"beneficiallyown"(assuchtermisdefinedforpurposesofSection13(d)oftheExchangeAct)anysharesofLILCOCommonStock.SEcftoN4.19BUSINESSSYNERGIES.BrooklynUnionisnotawareofanyfactorcircumstance,includingtheter'insofanyagreementtowhichitoranyofitsSubsidiariesissubject,thatwouldimpairinanymaterialrespecttheabilityoftheCompanytorealizethesynergiesdescribedinthejointpressreleasetobeissuedinconnectionwiththeannouncementofthistransaction..KARTICLEVREPRESENTATIONSANDWARRANTIESorLILCOLILCOrepresentsandwarrantstoBrooklynUnionasfollows:SEcfloN5.1ORGANIZATIONANDQUALIFICATION.ExceptassetforthinSection5.1oftheLILCODisclosureSchedule(asdefinedinSECTION7.6(i)),eachofLILCOandeachoftheLILCOSubsidiaries(asdefinedbelow)isacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionofincorporationororganization,hasallrequisitecorporatepowerandauthority;andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetsandpropertiestotheextenttowned,leasedandoperatedandtocarryonitsbusinessasitisnowbeingconductedandisdulyqualifiedandingoodstandingtodobusinessineachjurisdictioninwhichthenatureofitsbusinessortheownershiporleasingofitsassetsandpropertiesmakessuchqualificationnecessary.AsusedinthisAgreement,theterm"LILCOSUBSIDIARY"shallmeanaSubsidiaryofLILCO.SEGTIQN5.2SUBSIDIARIES.Section5.2oftheLILCODisclosureSchedulesetsforthadescriptionasofDecember29,1996ofallSubsidiariesandJointVenturesofLILCO("LILCOJOINTVENTURES"),including(a)thenameofeachsuchentityandLILCO'sinteresttherein,and(b)abriefdescriptionoftheprincipallineorlinesofbusinessconductedbyeachsuchentity.ExceptassetforthinSection5.2oftheLILCODisclosureSchedule,noneoftheLILCOSubsidiariesisa"publicutilitycompany",a"holdingcompany",a"subsidiarycompany"oran"affiliate"ofanypublicutilitycompanywithinthemeaningofSection2(a)(5),2(a)(7),2(a)(8)or'(a)(11)ofthe1935Act,respectively.ExceptassetforthinSection5.2oftheLILCODisclosureSchedule,alloftheissuedandoutstandingsharesofcapitalstockofeachLILCOSubsidiaryarevalidlyissued,fullypaid,nonassessableandfreeofpreemptiverights,andareowneddirectlyorindirectlybyLILCOfreeandclearofanyliens,claims,encumbrances,securityinterests,equities,chargesandoptionsofanynaturewhatsoeverandtherearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatinganysuchLILCOSubsidiarytoissue,deliverorsell,orcausetobeissued,'deliveredorsold,additionalsharesofitscapitalstockorobligatingittogrant,extendorenterintoanysuchagrccmentorcommitment.SEGTIQN5.3CAPITALIZATION.TheauthorizedcapitalstockofLILCOisassetforthinLILCO'sAnnualReportonForm10KfortheyearendedDecember31,1995.AsofthecloseofbusinessonDecember27,1996,therewereissuedandoutstanding120,780,792sharesofLILCOCommonStock.AlloftheissuedandoutstandingsharesofthecapitalstockofLILCOare,andanyLILCOCommonStockissuedpursuanttothetLILCOStockOptionAgreementwillbe,validlyissued,fullypaid,nonassessable(subjecttoSection630oftheNYBCL),andfreeofpreemptiverights.ExceptassetforthinSection5.3oftheLILCODisclosureSchedule,asofDecember29,1996,therearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesor othercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunder'anyoutstandingsecurity,instrumentorotheragreement,obligatingLILCOoranyoftheLILCOSubsidiariestoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofthecapitalstockofLILCO,orobligatingLILCOtogrant,extendorenterintoanysuchagreementorcommitment,otherthanundertheLILCOStockOptionAgreement.TherearenooutstandingstockappreciationrightsofLILCOwhichwerenotgrantedintandemwitharelatedstockoptionandnooutstandinglimitedstockappreciationrightsorotherrightstoredeemforcashoptionsorwarrantsofLILCO.'ECTION5.4AUTHORITY;NON-CONTRAVENTION;STATUTORYAPPROVALS;COMPLIANCE.(a)AUTHORITY.LILCOhasallrequisitepowerandauthoritytoenterintothisAgreementandtheLILCOStockOptionAgreemcnt,and,subje'cttotheLILCOShareholders'pproval(asdefinedinSECTION5.13)and,theLILCORequiredStatutoryApprovals(asdefinedinSECTION5.4(c)),toconsummatethetransactionscontemplatedherebyorthereby.TheexecutionanddeliveryofthisAgreementandtheLILCOStockOptionAgreementandtheconsummationbyLILCOofthetransactionscontemplate'dherebyandtherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofLILCO,subjecttoobtainingtheapplicableLILCOShareholders'pproval.ThisAgreementhasbeendulyandvalidlyexecutedanddeliveredbyLILCO,theLILCOStockOptionAgreementhasbeendulyandvalidlyexecutedanddeliveredbyLILCOand,assumingthedueauthorization,executionanddeliveryhereofandthereofbytheothersignatoriesheretoandthereto,eachofthirAgreementandtheLILCOStockOptionAgreementconstitutesthevalidandbindingobligationofLILCO,,enforceablcagainstitinaccordancewithitsterms."(b)NON-CONTRAVENTION.ExceptassetforthinSection5.4(b)oftheLILCODisclosureSchedule,theexecutiori'anddeliveryofthisAgreementandtheLILCOStockOptionAgreementby'LILCOdonot,andtheconsummationofthetransactionscontemplaiedherebyortherebywillnot,resultinamaterialViolationpursuanttoanyprovisionsof(i)thecertificatofincorporation,by-lawsorsimilargoverningdocumentsofLILCOoranyoftheLILCOSubsidiariesortheLILCOJointVentures,(ii)subjecttoobtainingtheLILCORequiredStatutoryApprovalsandthereceiptoftheLILCOShareholders'pproval,anystatute,law,ordinance,rule,regulation,judgment,decree,order,injunction,writ,permitorlicenseofanyGovernmentalAuthorityapplicabletoL'ILCOoranyoftheLILCOSubsidiariesortheLILCOJointVenturesoranyoftheirrespectivepropertiesorassetsor(iii)subjecttoobtainingthethird-partyconsentssetforthinSection5.4(b)oftheLILCODisclosureSchedule(the"LILCOREQUIREDCONSENTS")anymaterialnote,bond,mortgage,indenture,deedoftrust,license,franchise,permit,concession,contract,leaseorotherinstrument,obligationoragreementofany"kindtowhichLILCOoranyoftheLILCOSubsidiariesortheLILCOJointVenturesisapartyorbywhichitoranyofitspropertiesorassetsmaybeboundoraffected.(c)STATUTORYAPPROVALS.Nodeclaration,filingorregistrationwith,ornoticetoorauthOrization,consentorapprovalof,anyGovernmentalAuthorityisnecessaryfortheexecutionanddeliveryofthisAgreementortheLILCOStockOptionAgreementbyLILCOorthecbnsummationbyLILCOofthctransactionscontemplatedhereby,orthereby,exceptasdescribedinSection5.4(c)oftheLILCODisclosureSchedule(the"LILCOREQUIREDSTATUTORYAPPROVALS",itbeingunderstoodthat.referen'cesinthisAgfeqmentto"obtaining"suchLILCORequiredStatutoryApprovalsshallmeanmakingsuchdeclarations,filingsorregistrations;givingsuchnotices;obtainingsuchauthorizations,consentsorapprovals;andhavingsuchwaitingperiodsexpireasarenecessarytoavoidaviolationoflaw).(d)COMPLIANCE.ExceptassetforthinSection5.4(d),Section5.10orSection5.11oftheLILCODisclosureSchedule,orasdisclosedintheLILCOSECReports(asdefinedinSECTION5.5)filedpriortoDecember29,1996,neitherLILCOnoranyoftheLILCOSubsidiariesnor,totheknowledgeofLILCO,anyLILCOJointVenture,isinmaterialviolationof,isunderinvestigationwithrespecttoanymaterialviolationof,orhasbeengivennoticeorbeenchargedwithanymaterialviolationof,anylaw,statute,order,rule,regulation,ordinanceorjudgment(including,withoutlimitation,anyapplicableenvironmentallaw,ordinanceorregulation)ofanyGovernmentalAuthority.ExceptassetforthinSection5.4(d)oftheLILCODisclosureScheduleorinSection5.11oftheLILCODisclosureSchedule,LILCOandtheLILCOSubsidiariesandLILCOJointVentures ehaveallpermits,licenses,franchisesandothergovernmentalauthorizations,consentsandapprovalsnecessarytoconducttheirbusinessesaspresentlyconductedinallmaterialrespects.ExceptassetforthinSection5.4(d)oftheLILCODisclosureSchedule,LILCOandeachoftheLILCOSubsidiariesisnotinmaterialbreachorviolationoforinmaterialdefaultintheperformanceorobservanceofanytermorprovisionof,andnoeventhasoccurredwhich,withlapseoftimeoractionbyathirdparty,couldresultinamaterialdefaultunder,(i)itscertificateofincorporationorby-lawsor(ii)anymaterialcontract,commitment,agreement,indenture,'mortgage,loanagreement,note,lease,bond,license,approvalorotherinstrumenttowhichitisapartyorbywhichitisboundortowhichanyofitspropertyissubject.lSECTIQN5.5REPORTSANDFINANCIALSTATEMENTS.'ThefilingsrequiredtobemadebyLILCOandtheLILCOSubsidiariessinceJanuary1,1994undertheSecuritiesAct,theExchangeAct,the1935Act,thePowerAct,theAtomicEnergyActandapplicablestatelawsandregulationshavebeenfiledwiththeSEC,the~FERC,theNRCortheappropriatestatepublicutilitiescommission,asthecasemaybe,includingallforms,statements,reports,agreements(oralorwritten)andalldocuments,exhibits,amendmentsandsupplementsappertainingthereto,andcomplied,asoftheirrespectivedates,inallmaterialrespectswithallapplicablerequirementsoftheappropriatestatuteandtherulesandregulationsthereunder.LILCOhasmadeavailabletoBrooklynUnionatrueandcompletecopyofeachreport,schedule,registrationstatementanddefinitiveproxystatementfiledbyLILCOwiththeSECsinceJanuaryI,1994(assuchdocumentshavesincethetimeoftheirfilingbeenamended,the"LILCOSECREPORTS").Asoftheirrespectivedates,theLILCOSECReportsdidnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactrequiredtobestatedthereinornecessarytomakethestatementstherein,inlightofthecircumstancesunderwhichtheywercmade,not'isleading.TheauditedconsolidatedfinancialstatementsandunauditedinterimfinancialstatementsofLILCOincludedintheLILCOSECReports(collectively,the"LILCOFINANCIALSTATEMENTS")havebeenpreparedinaccordancewithGAAP(exceptasmaybeindicatedthereinorinthenotestheretoandexceptwithrespecttounauditedstatements'aspermittedbyForm10-QoftheSEC)an'dfairlypresentthefinancialpositionofLILCOasofthedatesthereofandtheresultsofitsoperationsandcashflowsfortheperiodsthenended,subject,inthecaseof'theunauditedinterimfinancialstatements,'onormal,recurringauditadjustments.True,accurateandcompletecopiesoftheRestatedCertificateofIncorporationandBy-lawsofLILCO,asineffectonDecember29,1996,areincluded(orincorporatedbyreference)intheLILCOSECReports.SEcTIQN5.6ABSENCEOFCERTAINCHANGESOREVENTS.ExceptasdisclosedintheLILCOSECReportsfiledpriortoDecember29,1996or'ssetforthinSection5.6oftheLILCODisclosureSchedule,sinceDecember31,1995,LILCOandeachoftheLILCOSubsidiarieshaveconductedtheirbusinessonlyintheordinarycourseofbusinessconsistentwithpastpracticeandtherehasnotbeen,andnofactorconditionexistswhichwouldhaveor,insofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsofLILCOanditssubsidiariestakenasawhole(a"LILCOMATERIALADVERSEEFFECT").hSEcTIQN5.7LITIGATION.ExceptasdisclosedintheLILCOSECReportsfiledpriortoDecember29,1996orassetforthinSection5.7,Section5.9orSection'5.11oftheLILCODisclosureSchedule,(i)therearenomaterialclaims,suits,actionsorproceedings,pendingor,totheknowledgeofLILCO,threatened,norarethere,totheknowledgeofLILCO,anymaterialinvestigationsorreviewspendingorthreatenedagainst,relatingtooraffectingLILCOoranyoftheLILCOSubsidiaries,(ii)therehavenotbeenanysignificantdevelopmentssinceDecember31,1995withrespecttosuchdisclosedclaims,suits,actions,proceedings,investigationsorreviewsand(iii)therearenomaterialjudgments,decrees,injunctions,rulesorordersofanycourt,governmentaldepartment,commission,agency,instrumentalityorauthorityoranyarbitratorapplicabletoLILCOoranyoftheLILCOSubsidiaries.SEcTIQN5.8REGISTRATIONSTATEMENTANDPROXYSTATEMENT.NoneoftheinformationsuppliedortobesuppliedbyoronbehalfofLILCOforinclusionorincorporationbyreferencein(i)theRegistrationStatementwill,atthetimetheRegistrationStatementisfiledwiththeSECandatthetimeitbecomeseffectiveundertheSecuritiesAct,containanyuntruestatementofamaterialfactoromittostateanymaterialfactrequiredtobestatedthereinornecessarytomakethestatementsthereinnotmisleadingand(ii)the ProxyStatementwillnot,atthedatesmailedtoshareholdersandatthetimesofthemeetingsofshareholderstobeheldinconnectionwiththeTransactions,containanyuntruestatementofamaterialfactoromittostateanymaterialfactrequiredtobestatedthereinornecessaryin'rdertomakethestatementstherein,inlightofthecircumstancesunderwhichtheyaremade,notmisleading;The'RegistrationStatementandtheProxyStatementwillcomplyastoforminallmaterialrespectswiththeprovisionsoftheSecuritiesActandtheExchangeActandtherulesandregulationsthereunder.St!crtox5.9TAXMATTERS.ExceptassetforthinSection5.9oftheLILCODisclosureSchedule(a)FILINGOFTIMELYTAXRETURNS.LILCOandeachoftheLILCOSubsidiarieshavefiled(orthereliasbeenfiledonitsbehalf)allmaterialTaxReturnsrequiredtobefiledbyeachofthemunder.applicablelaw.AllsuchTaxReturnswereandareinallmaterialrespectstrue,completeandcorrectandfiledonatimelybasis.(b)PAYMENTOFTAXES.LILCOandeachoftheLILCOSubsidiarieshave,withinthetimeandinthemannerprescribedbylaw,paidallTaxesthatarecurrentlydueandpayableexceptforthosecontestedingoodfaithandforwhichadequatereserveshavebeentaken.(c)TAXRESERVES.LILCOandtheLILCOSubsidiarieshaveestablishedontheirbooksandrecordsreservesatlequatetopayallTaxesandreservesfordeferredincometaxesinaccordancewithGAAP~(d)TAXL'IENS.TherearenoTaxliensupontheassetsofLILCOoranyoftheLILCOSubsidiariesexceptliensforTaxesnotyctdue.r(e)WITHHOLDINGTAXES.LILCOandeachoftheLILCOSubsidiarieshavecompliedinallmaterialrespectswiththeprovisionsoftheCoderelatingtothewithholdingofTaxes,aswellassimilarprovisionsunderanyotherlaws,andhave,withinthetimeandinthemannerprescribedbylaw,withheldfromemployeewagesandpaidovertothepropergovernmentalauthoritiesallamountsrequired.(f)EXTENSIONSOFTIMEFORFILINGTAXRETURNS.NeitherLILCOnoranyoftheLILCOSubsidiarieshasrequestedanyextensionoftimewithinwhichtofileanyTaxReturn,whichTaxReturnhasnotsincebeenfiled.(g)WAIVERSOFSTATUTEOFLIMITATIONS.NeitherLILCOnoranyoftheLILCOSubsidiarieshasexecutedany,outstandingwaivers'orcomparableconsentsregardingtheapplicationofthestatuteoflimitationswithrespecttoanyTaxesorTaxReturns.(h)EXPIRATIONOFSTATUTEOFLIMITATIONS.'hestatuteoflimitationsfortheassessmentofallTaxeshasexpiredforallapphcableTaxReturnsofLILCOandeachof'thcLILCOSubsidiariesorthoseTaxReturnshavebeenexaminedbytheappropriatetaxingauthoritiesforallperiodsthroughDecember29,1996,andnodeficiencyforanyTaxeshasbeenproposed,assertedorassessedagainstLILCO'oranyoftheLILCOSubsidiariestliathasnotbeenresolvedandpaidinfull.C(i)AUDIT,ADMINISTRATIVEANDCOURTPROCEEDINGS.NoauditsorotheradministrativeproceedingsorcourtproceedingsarepresentlypendingwithregardtoanyTaxesorTaxReturnsofLILCOoranyofthe,LILCOSiibsidiaries.(j)POWERSOFATTORNEY.Nopowerofattorneycurrentlyinforce'asbeengrantedbyLILCOo'ranyoftlieLILCOSubsidiariesconcerninganyTaxmatter.(k)TAXRULINGS.NeitherLILCOnoranyoftheLILCOSubsidiarieshasreceivedaTaxRulingorenteredintoaClosingAgreementwithanytaxingauthoritythatwouldhaveacontinuingadverseeffectaftertheClosingDate.(1)AVAILABILITYOFTAXRETURNS.LILCOhasmadeavailablctoBrooklynUnioncompleteandaccuratecopiesof(i)allTaxReturns,andanyamendmentsthereto,filedbyLILCOoranyoftheLILCOSubsidiaries,(ii)allauditreportsreceivedfromanytaxingauthorityrelatingtoanyTaxReturnfiled byLILCOoranyoftheLILCOSubsidiariesand(iii)anyClo'singAgreementsenteredintobyLILCOoranyoftheLILCOSubsidiarieswithanytaxingauthority.(m)TAXSHARINGAGREEMENTS.NeitherLILCOnoranyLILCOSubsidiaryisapartytoanyagreementrelatingtoallocatingorsharingofincomeTaxes.(n)CODESECTION280G.NeitherLILCOnoranyoftheLILCOSubsidiariesisapartytoanyagreement,contract,orarrangementthatcouldresult,onaccountofthetransactionscontemplatedhereunder,separatelyorintheaggregate,inthepaymentofany"excessparachutepayments"withinthemeaningofSection280GoftheCode.(o)LIABILITYFOROTHERS.NoneofLILCOoranyoftheLILCOSubsidiarieshasanyliabilityforTaxesofanypersonotherthanLILCOandtheLILCOSubsidiaries(i)underTreasuryRegulationsSection1.1502-6(oranysimilarprovisionofstate,localorforeignlaw)asatransfereeorsuccessor,(ii)bycontract,or(iii)otherwise.SEGTIQN5.10EMPLOYEEMATTERS;ERISA.ExceptassetforthinSection5.10oftheLILCODisclosureSchedule:(a)BENEFITPLANS.Section5.10(a)ofthe,LILCODisclosureSchedulecontainsatrueandcompletelistofeachemployeebenefitplancoveringemployees,formeremployeesordirectorsofLILCOandeachoftheLILCOSubsidiariesortheirbeneficiaries,orprovidingbenefitstosuchpersonsinrespectofservicesprovidedtoanysuchentity,including,butnotlimitedto,anyemployeebenefitplanswithinthemeaningofSection3(3)ofERISAandanyseveranceorchangeincontrolagreement(collectively,the"LILCOBENEFITPLANS").ForthepurposesofthisSECTION5.10only,theterm"LILCO"shallbedeemedtoincludethepredecessorsofsuchcompany.(b)CONTRIBUTIONS.AllmaterialcontributionsandotherpaymentsrequiredtobemadebyLILCOoranyoftheLILCOSubsidiariestoanyLILCOBenefitPlan(ortoanypersonpursuanttothetermsthereof)havebeenmadeortheamountofsuchpaymentorcontributionobligationhasbeenreflectedintheLILCOFinancialStatements.(c)QUALIFICATION;COMPLIANCE.EachoftheLILCOBenefitPlansintendedtobe"qualified"withinthemeaningofSection401(a)oftheCodehasbeendeterminedbytheIRStobesoqualified,and,tothebestknowledgeofLILCO,nocircumstancesexistthatarereasonablyexpectedbyLILCOtoresultintherevocationofanysuchdetermination.LILCOisincomplianceinallmaterialrespectswith,andeachoftheLILCOBenefitPlansisandhasbeenoperatedinallmaterialrespectsincompliancewith,allapplicablelaws,rulesandregulationsgoverningsuchplan,including,withoutlimitation,ERISAandtheCode.EachLILCOBenefitPlanintendedtoprovideforthedeferralofincome,thereductionofsalaryorothercompensation,ortoaffordotherincometaxbenefits,complieswiththerequirementsoftheapplicableprovisionsoftheCodeorotherlaws,rulesandregulationsrequiredtoprovidesuchincometaxbenefits.(d)LIABILITIES.WithrespecttotheLILCOBenefitPlans,individuallyandintheaggregate,noeventhasoccurred,and,tothebestknowledgeofLILCO,theredocsnotnowexistanyconditionorsetofcircumstances,thatcouldsubjectLILCOoranyoftheLILCOSubsidiariestoanymaterialliabilityarisingundertheCode,ERISAoranyotherapplicablelaw(including,withoutlimitation,anyliabilitytoanysuchplanorthePBGC),orunderanyindemnityagreementtowhich'LILCOisaparty,excludingliabilityforbenefitclaimsandfundingobligationspayableintheordinarycourse.(e)WELFAREPLANS.NoneoftheLILCOBenefitPlansthatare"welfareplans",withinthemeaningofSection3(1)ofERISA,providesforanyretireebenefits,otherthancontinuationcoveragerequiredtobeprovidedunderSection4980BoftheCodeorPart6ofTitleIofERISA.(f)DOCUMENTSMADEAVAILABLE.LILCOhasmadeavailabletoBrooklynUnionatrueandcorrectcopyofeachcollectivebargainingagreementtowhichLILCOoranyoftheLILCOSubsidiariesisapartyor'underwhichLILCOoranyoftheLILCOSubsidiarieshasobligationsand,withrespecttoeach LILCOBenefitPlan,whereapplicable,(i)suchplanandsummaryplandescription,(ii)themostrecentannualreportfiledwiththeIRS,(iii)eachrelatedtrustagreement,insurance'contract,serviceproviderorinvestmentmanagementagreement(includingallamendmentstoeachsuchdocument),(iv)themostrecentdeterminationoftheIRSwithrespecttothequalifiedstatusofsuchLILCOBenefitPlan,and(v)themostrecentactuarialreportorvaluation.(g)PAYMENTSRESULTINGFROMTHETRANSACTIONS.(i)TheconsummationorannouncementofanytransactioncontemplatedbythisAgreementwillnot(eitheraloneorupontheoccurrenceofanyadditionalorfurtheractsorevents)resultinany(A)payment(whetherofseverancepayorotherwise)becomingduefromLILCOoranyoftheLILCOSubsidiariestoanyofficer,employee,formeremployeeordirectorthereofortothetrusteeunderany"rabbitrust"orsimilararrangement,or(B)benefitunderanyLILCOBenefitPlanbeingestablishedorbecomingaccelerated;vestedorpayable'and(ii)neitherLILCOnoranyoftheLILCOSubsidiariesisapartyto(A)anymanagement,employment,deferredcompensation,severance(includinganypayment,rightorbenefitresultingfromachangeincontrol),bonusorothercontractforpersonalscrviccswithanyofficer,directororemployee,(B)anyconsultingcontractwithanypersonwhopriortoenteringintosuchcontractwasadirectororofficerofLILCO,or(C)anyplan,agreement,arrangementorunderstandingsimilartoanyoftheforegoing.(h)LABORAGREEMENTS.AsofDecember29,1996,exceptassetforthinSection5.10(h)oftheLILCODisclosureScheduleorintheLILCOSECReportsfiledpriortoDecember29,1996,neitherLILCOnoranyoftheLILCOSubsidiariesisapartytoanycollectivebargainingagreementorotherlaboragreemcntwithanyuriionorlabororganization.TothebestknowledgeofLILCO,asofDecember29,1996,exceptassetforthinSection5.10(h)oftheLILCODisclosureSchedule,thereisnocurrentunionrepresentationquestioninvolvingemployeesofLILCOoranyoftheLILCOSubsidiaries,nordoesLILCOknowofanyactivityorproceedingofanylabororganization(orrepresentativethereof)oremployeegrouptoorganizeanysuchemployees.ExceptasdisclosedintheLILCOSECReportsfiledpriortoDecember29,1996orinSection5.10(h)oftheLILCODisclosureSchedule,(i)thereisnounfairlaborpractice,~employmentdiscriminationorothermaterialcomplaintagainst'ILCOoranyoftheLILCOSubsidiaries~pending,ortothebestknowledgeofLILCO,threatened,(ii)thereisnostrike,orlockoutormaterialdispute,slowdownorworkstoppagepending,ortothebestknowledgeofLILCO,threatened,againstorinvolvingLILCO,and(iii)thereisnoproceeding,claim,suit,actionorgovernmentalinvestigationpendingor,tothebestknowledgeofLILCO,threatened,inrespectofwhichanydirector,officer,employeeoragentofLILCOoranyoftheLILCOSubsidiariesisormaybeentitledtoclaimindemnificationfromLILCOorsuchLILCOSubsidiarypursuanttotheirrespectivecertificatesofincorporationorby-lawsorasprovidedintheindemnificationagreemcntslistedinSection5.10(h)oftheLILCODisclosureSchedule.Secrtow5.11ENVIRONMENTALPROTECTION.ExceptassetforthinSection5.11oftheLILCODisclosureScheduleorintheLILCOSECReportsfiledpriortoDecember29,1996:(a)COMPLIANCE.LILCOandeachoftheLILCOSubsidiariesisinmaterialcolnpiiancewithallapplicableEnvironmentalLaws;andneitherLILCOnoranyoftheLILCOSubsidiarieshasreceivedanycommunication(writtenororal),fromanypersonorGovernmentalAuthoritythatallegestliatLILCOoranyoftheLILCOSubsidiariesisnotinsuchcdmpliancewithapplicableEnvironmentalLaws.(b)ENVIRONMENTALPERMITS.LILCOandeachoftheLILCOSubsidiarieshasobtainedorhas'appliedforalltheEnvironmentalPermitsnecessaryfortheconstructionoftheirfacilitiesortheconductoftheiroperations,andallsuchEnvironmentalPermitsareingoodstandingor,whereapplicable,arenewalapplicationhasbeentimelyfiledandispendingagencyapproval,andLILCOandtheLILCOSubsidiariesareinmaterialcompliancewithalltermsandconditionsoftheEnvironmentalPermits.(c),ENVIRONMENTALCLAIMS.TothebestknowledgeofLILCO,there'isnomaterialEnvironmentalClaimpending(i).againstLILCOoranyoftheLILCOSubsidiariesorLILCOJointVentures,(ii)againstanypersonorentitywhoseliabilityforanyEnvironmentalClaimLILCOoranyof,theLILCOSubsidiarieshasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw,orA-20 (iii)againstanyrealorpersonalpropertyoroperationswhichLILCOoranyoftheLILCOSubsidiariesowns,leasesormanages,inwholeorinpart.(d)RELEASES.LILCOhasnoknowledgeofanymaterialReleasesofanyHazardousMaterialthatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaimagainstLILCOoranyofthe,LILCOSubsidiaries,oragainstanypersonorentitywhoseliabilityforanymaterialEnvironmentalClaimLILCOoranyoftheLILCOSubsidiarieshasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw.(e)PREDECESSORS.LILCOhasnoknowledge,'withrespecttoanypredecessorofLILCOoranyoftheLILCOSubsidiaries,ofanymaterialEnvironmentalClaimpendingorthreatened,orofanyReleaseofHazardousMaterialsthatwouldbereasonablylikelytoformthebasisofanyinaterialEnvironmentalClaim.(f)DISCLOSURE.ToLILCO'sbestknowledge,LILCOhasdisclosedtoBrooklynUnionallmaterialfactswhichLILCOreasonablybelievesformthebasisofamaterialEnvironmentalClaimarisingfrom,(i)thecostofLILCOpollutioncontrolequipmentcurrentlyrequiredorknowntoberequiredinthefuture;(ii)currentLILCOremediationcostsorLILCOremediation'costsknowntoberequiredinthefuture;or(iii)anyotherenvironmentalmatteraffectingLILCO.ISEGTION5.12REGULATIONASAUTILITY.ExceptassetforthinSection5.12oftheLILCODisclosureSchedule,neitherLILCOnorany"subsidiarycompany"or"affiliate"(assuchtermsaredefinedinthe1935Act)ofLILCOissubjecttoregulationasapublicutilityorpublicservicecomp'any(or'similardesignation)byanystateintheUnitedStatesotherthanNewYorkoranyforeigncountry.St:.crt'.13VOTEREQUIRED.TheadoptionofthisAgreementbytwo-thirdsofthevotesentitledtobecastbyallholdersofLILCOCommonStock(collectively,the"LILCOSHAREHOLDERS'PPROVAL")istheonlyvoteoftheholdersofanyclassorseriesofthecapitalstockofLILCOoranyofitssubsidiariesrequiredtoadoptthisAgreementandtheothertransactionscontemplatedhereby.'eertow5.14ACCOUNTINGMATTERS.NeitherLILCOnor,toLILCO'sbestknowledge,anyofitsaffiliateshastakenoragreedtotakeanyactionthatwouldpreventtheCompanyfromaccountingforthetransactionstobeeffectedpursuanttothisAgreementasapoolingofinterestsinaccordancewithGAAPifthetransactionscontemplatedbytheLIPAAgreementarenotconsummated.SrcrtoN5.15APPLICABILITYOFCERTAINPROVISIONSOFLAW.AssumingthattherepresentationandwarrantyofBrooklynUnionmadeinSECTION4.18iscorrect,-noneofthebusinesscombinationprovisionsofSections912oftheNYBCLoranysimilarprovisionsoftheNYBCL(or,tothebestknowledgeofLILCO,anyothersimilarstatestatute)ortheRestatedCertificateofIncorporationorby-lawsofLILCO,areapplicabletothetransactionscontemplatedbythisAgreement,includingthegrantingorexerciseoftheLILCOStockOption(exceptassetforthinSection5.15oftheL'ILCODisclosureSchcdu'le).SEGTIQN5.16OPINIONOFFINANCIALADVISOR.LILCOhasreceivedtheopinionofDillon,Read&Co.Inc.("DILLONREAD"),datedDecember29,1996totheeffectthat,asofthedatethereof,theOriginalRatioisfairfromafinancialpointofviewtotheholdersofLILCOCommonStock,andLILCOhasreceivedtheopinionofDillonReaddatedbrune27,1997,totheeffectthat,asofthedatethereof,theLIPARatioisfairfroinafinancialpointofviewtothcholdersofLILCOCommonStock.St:.cnow5.17INSURANCE.ExceptassetforthinSection5.17oftheLILCODisclosureSchedule,LILCOandeachoftheLILCOSubsidiariesis,andhasbeencontinuouslysinceJanuary1,1991,insuredwithfinanciallyresponsibleinsurersinsuchamountsandagainstsuchrisks'ndlosses'asarecustomaryinallmaterialirespectsforcompaniesconductingthebusinessasconductedbyLILCOandtheLILCOSubsidiariesduringsuchtimeperiod.ExceptassetforthinSection5.17oftheLILCODisclosureSchedule,neitherLILCOnoranyoftheLILCOSubsidiarieshasreceivedanynoticeofcancellationorterminationwithrespecttoanymaterial HinsurancepolicyofLILCOoranyoftheLILCOSubsidiaries.TheinsurancepoliciesofLILCOandeachoftheLILCOSubsidiariesarevalidandenforceablepoliciesinallmaterialrespects.SECTIQN5.18OWNERSHIPOFBROOKLYNUNIONCOMMONSTOCK.ExceptpursuanttothetermsoftheBrooklynUnionStockOptionAgreement,LILCOdoesnotbeneficiallyown(assuchtermisdefinedforpurposesofSection13(d)oftheExchangeAct)anysharesofBrooklynUnionCommonStockorBrooklynUnionPreferredStock.SEcTION5.19.BUSINESSSYNERGIES.LILCOisnotawareofanyfactorcircumstance,includingthetermsofanyagreementtowhichitoranyofitsSubsidiariesissubject,thatwouldimpairinanymaterialrespecttheabilityoftheCompanytorealizethesynergiesdescribedinthejointpressreleasetobeissuedinconnectionwiththeannouncementofthistransaction.ARTICLEVICONDUCTOFBUSINESSPENDINGTHEEFFECTIVFTIMESEGTIQN6.1COVENANTSOFTHEPARTIES.AfterthedatehereofandpriortotheEffectiveTimeorearlierterminationofthisAgreement,BrooklynUnionandLILCOeachagreeasfollows,eachastoitselfandtoeachoftheBrooklynUnionSubsidiariesandtheLILCOSubsidiaries,asthecasemaybe,exceptas"expresslycontemplatedorpermittedinthisAgreement,theBrooklynUnionStockOptionAgreement,theLILCOStockOptionAgreement,theKeySpanExchangeAgreement,theLIPAAgreementandtheHedgeArrangements(asdefinedinSECTION7.18(c)),ortothe'extenttheotherpartiesheretoshallotherwiseconsentinwriting:(a)ORDINARYCOURSEOFBUSINESS.Eachpartyheretoshall,andshallcauseitsSubsidiariesto,carryontheirrespectivebusinessesintheusual,regularandordinarycourseinsubstantiallythesamemannerasheretoforeconductedanduseallcommerciallyreasonableeffortstopreserveintacttheirpresentbusinessorganizationsandgoodwill,preserve,thegoodwillandrelationshipswithcustomers,suppliersandothershavingbusinessdealingswiththemand,subjecttoprudentmanagementofworkforceneedsandongoingprogramscurrentlyinforce,keepavailabletheservicesoftheirpresentofficersandemployees.ExceptassctforthinSection6.1(a)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,nopartyshall,norshallanypartypcrtnitanyofitsSubsidiariesto,enterintoanewlineofbusiness,ormakeanychangeinthelineofbusinessitengagesinasofthedatehereofinvolvinganymaterialinvestmentofassetsorresourcesoranymaterialexposuretoliabilityorloss,inthecaseofBrooklynUnion,toBrooklynUnionanditsSubsidiariestakenasawhole,andinthecaseofLILCO,toLILCOanditsSubsidiariestakenasawhole.II(b)DIVIDENDS.ExceptassetforthinSection6.1(b)oftheBrooklynUnionDisclosureScheduleorthcLILCODisclosureSchedule,respcctivcly,andexceptasprovidedinthelastsentenceofthisSECTION6.1(b)nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,(i)declareorpayanydividendsonormakeotherdistributionsinrespectofanyoftheircapitalstockotherthantosuchpartyoritswholly-ownedsubsidiariesandotherthandividendsrequiredtobepaidonanyPreferredStockinaccordancewiththerespectivetermsthereof,regularquarterlydividendsonLILCOCommonStockwithusualrecordandpaymentdatesnot,duringanyfiscalyear,inexcessof103%ofthedividendsforthepriorfiscalyearandregularquarterlydividendsonBrooklynUnionCommonStockwithusualrecordandpaymentdatesnot,duringanyfiscalyear,,inexcessof103%ofthedividendsforthepriorfiscalyear;(ii)split,combineorreclassifyariyoftheircapitalstockorissueorauthorizeorproposetheissuanceofanyothersecuritiesinrespectof,inlieuof,orinsubstitutionfor,sharesoftheircapitalstock;or(iii)redeem,repurchaseorotherwiseacquireanysharesoftheircapitalstock,othertlianredemptions,purchasesoracquisitionsrequiredbytherespectivetermsofanyoutstandingseriesofpreferredstockofBrooklynUnionorLILCO,asthecasemaybc.ThelastrecorddateofeachofLILCOandBrooklynUniononorpriortotheEffectiveTimewhichrelatestoaregularquarterlydividendonLILCOCommonStockorBrooklyn/UnionCommonStock,asthecasemaybe,shallbethesamedateandshallbepriortotheEffectiveTime.A-22 00Notwithstandingtheforegoing,priortotheLILCOEffectiveTime,BrooklynUnionmaycausetheredemptionofallissuedandoutstandingsharesofpreferredstockofBrooklynUnioninaccordancewiththetermsthereof.(c).ISSUANCEOFSECURITIES.ExceptassetforthinSection6.1(c)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,andexceptasprovidedinSECTION7.20nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,issue,agreetoissue,deliver,sell,award,pledge,disposeoforotherwiseencumberorauthorizeorproposetheissuance,delivery,sale,award,pledge,disposalorotherencumbranceof,anysharesoftheircapitalstockofanyclassoranysecuritiesconvertibleintoorexchangeablefor,oranyrights,warrantsoroptionstoacquire,anysuchsharesorconvertibleorexchangeablesecurities.ThepartiesshallpromptlyfurnishtoeachothersuchinformationasinaybereasonablyrequestedincludingfiitancialinformationandtakesuchactionasmaybeJeasonablynecessaryandotherwisefullycooperatewitheachotherinthepreparationofanyregistrationstatementundertheSecuritiesActandotherdocumentsnecessaryinconnectionwithissuanceofsecuritiesascontemplatedbythisSECTION6.1(c),subjecttoobtainingcustomaryindemnities.(d)CHARTERDOCUMENTS.Nopartyshallamendorproposetoamenditsrespectivecertificateofincorporation,by-lawsorregulations,orsimilarorganizationaldocuments,exceptasconteinplatedherein.(e)NOACQUISITIONS.ExceptassetforthinSection6.1(e)oftheBrooklynUnionDisc'losureScheduleortheLILCO.DisclosureSchedule,respectively,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,acquire,orpubliclyproposetoacquire,oragreetoacquire,bymergerorconsolidationwith,orbypurchaseorotherwise,asubstantialequityinterestinorasubstantialportionoftheassetsof,anybusinessoranycorporation,partnership,associationorotherbusinessorganizationordivisionthereof,norshallanypartyacquireoragreetoacquireamaterialamountofassetsotherthanintheordinarycourseofbusinessconsistentwithpastpractice.(f)CAPITALEXPENDITURES.ExceptassetforthinSection6.1(f)oftheBrooklynUnionDisclbsureScheduleortheLILCODisclosureSchedule,respectively,orasrequiredbylaw,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,makecapifalexpendituresinexcessof110%oftheamountbudgetedbysuclipartyforcapitalexpendituresassetforthinsuchSection6.1(f)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule.(g)NODISPOSITIONS.ExceptassetforthinSection6.1(g)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,otherthandispositionsbyapartyanditsSubsidiariesoflessthan$10million,singularlyorintheaggregate,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,sell,lease,license,encumberorothenvisedisposeof,anyofitsassets,otherthanencumbrancesordispositionsintheordinarycourseofitsbusinessconsistentwithpastpractice.(h)INDEBTEDNESS.ExceptascontemplatedbythisAgreement,nopartyshall',norshallanypartypermitanyofitsSubsidiariesto,incurorguaranteeanyindebtedness(includinganydebtborrowedorguaranteedorotherwiseassumedincluding,withoutlimitation,theissuanc'eofdebtsecuritiesorwarraritsorrightstoacquiredebt)orenterintoany"keepwell"orotheragreementtomaintainanyfinancialstatementconditionofanotherpersonorenterintoanyarrangementhavingtheeconomiceffectofanyoftheforegoingotherthanincurrencestorefinanceexistingindebtednessandotherthanassetforthinSection6.1(h)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively.(i)COMPENSATION,BENEFITS.ExceptassetforthinSection6.1(i)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,asmayberequiredbyapplicablelaworascontemplatedbythisAgreement,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,(i)enterinto,adoptoramendorincreasetheamountoracceleratethepaymentorvestingofanybenefitoramountpayableunder,anyemployeebenefitplanorothercontract,agreement,commitment,arrangemcnt,planorpolicymaintainedby,contributedtoorenteredintobysuchpartyoranyofitsSubsidiaries,or'ncrease,orenterintoanycontract,agreement,commitmentorarrangementtoincreaseinanymanner,theA-23 I4compensationorfringebenefits,orotherwisetoextend,expandorenhancetheengagement,employmentoranyrelatedrights,ofanydirector,officerorotheremployeeofsuchpartyoranyofitsSubsidiaries,exceptfornormalincreasesintheordinarycourseofbusinessconsistentwithpastpracticethat',intheaggregate,donotresultinamaterialincreaseinbenefitsorcompensationexpensetosuchpartyoranyofits"Subsidiariesor(ii)enterintooramendanyemployment,severanceorspecialpayarrangementwithrespecttotheterminationofemploymentorothersimilarcontract,agreementorarrangementwithany'directororofficerorotheremployeeotherthaniritheordinarycourseofbusinessconsistentwithpastpractice.(j)1935ACT.ExceptassetforthinSection6.1(j)oftheBrooklynUnionDisclosureScheduleorLILCODisclosureSchedule,respectively,nopartyshall,norshallanypartypermitanyofitsSubsidiaries,to,exceptasrequiredorcontemplatedbythisAgreement,engageinanyactivitieswhichwouldcauseachangeinitsstatus,orthatofitssubsidiaries,underthe1935Act,orthatwouldimpairtheabilityofLILCOorBrooklynUnion,asthecasemaybe,toclaimanexemptionasofrightunderRule2ofthe1935Act.(k)TRANSMISSION,GENERATION.ExceptasrequiredpursuanttotariffsonfilewiththeFERCasofthedatehereof,intheordinarycourseofbusinessconsistentwithpast,practice,orassetforthinSection6.1(k)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,(i)commenceconstructionofanyadditionalelectricgenerating,transmissionordeliverycapacity,or(ii)obligateitselftopurchaseorotherwiseacquire,ortosellorotherwisedisposeof,ortoshare,anyadditionalelectricgenerating,transmissionordeliverycapacityexceptassetforthinthebudgetsofBrooklynUnionandLILCOonthedatehereofassetforthinSection6.1(f)oftheBrooklynUnionDisclosureScheduleandtheLILCODisclosureSchedule.'1)ACCOUNTING.ExceptassetforthinSection6.1(l)oftheBrooklynUnionDisclosureScheduleorLILCODisclosureSchedule,respectively,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,makeanychangesintheiraccountingmethods,exceptasrequiredbylaw,rule,regulationorGAAP.'(m)POOLING.Nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,takeanyactionwhichwould,orwouldbereasonablylikelyto,preventtheCompanyfromaccountingforthetransactionstobeeffectedpursuanttothisAgreementasapoolingofinterestsinaccordancewithGAAPandapplicableSECregulations,andeachpartyhereto,shalluseallreasonableeffortstoachievesuchresult(includingtakingsuchactionsasmaybenecessarytocureanyfactsorcircumstancesthatcouldpreventsuchtransactionsfromqualifyingforpooling-of-interestsaccountingtreatment).(n)"TAXSTATUS.Nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,takeany,actionswhichwould,orwouldbereasonablylikelyto,adverselyaffectthestatusoftheMergerasatax-freetransactiontotheholdersofBrooklynUnionCommonStockand,unlesstheLIPAAgreementhasbeenterminated,theShareExchangeasataxabletransactiontotheholdersofLILCOCommonStockandtheformationoftheCompanytobeatransactionfowhichSection351oftheCode'doesnotapply,andeachpartyheretoshalluseallreasonableeffortstoachievesuchresultandshalltakesuchpositioninanyrelevantpublicdisclosuredocument(including,withoutlimitation,theJoint.Proxy/RegistrationStatement(ashereinafterdefined).LILCO'smostrecenttaxyear,forfe'deralincometaxpurposes,commencedonApril1,1997.AtnotimeduringtheperiodApril1,1997throughMarch31,1998,inclusive,,willLILCObeeitherthecommonparentoramemberofan"affiliatedgroup"withinthemeaningofSection1504oftheCode.LILCOwillnotwithrespecttoanytaxyearbeginningonorafterApril1,1998fileorjoininthefilingofaconsolidatedfederalincometaxreturnwithrespecttoanyaffiliatedgroup,withinthemeaningofSection1504oftheCode.LILCOwilladvisethetrusteeofthedefinedbenefitplanofLILCOoftheconsequencesofowning,orpriortotheLIPAEffectiveTimeifthetransactionscontemplatedherebyaretobeconsummatedpursuanttoSECTION7.'18(b)acquiring,anysharesofLIL'COCommonStock.(o)AFFILIATETRANSACTIONS.ExceptassetforthinSection6.1(o)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,enterintoanymaterialagreementorarrangementwithanyoftheirA-24 respectiveaffiliates(otherthanwholly-ownedsubsidiaries)ontermsmateriallyless,favorabletosuchpartytliancouldbereasonablyexpectedtohavebeenobtainedwithanunaffiliatedthirdpartyonanarm'-lengthbasis.(p)COOPERATION,NOTIFICATION.Eachpartyshall,andshallcauseitsSubsidiariesto,(i)conferonaregularandfrequentbasiswithoneormorerepresentativesoftheotherpartytodiscuss,subjecttoapplicablelaw,materialoperationalmattersandthegeneralstatusofitsongoingoperations;(ii)promptly,notifytheotherpartyofanysignificantchangesinitsbusiness,properties,assets,condition(financialorother),resultsofoperationsorprospects;(iii)'advisetheotherpartyofanychangeoreventwhichhashadbr,insofarasreasonablycanbeforeseen,isreasonablylikelytoresultin,inthecaseofBrooklynUnion,aBrooklyn,UnionMaterialAdverseEffector,inthecaseofLILCO,aLILCOMaterialAdverseEffect;and(iv)promptlyprovidetheotherpartywithcopiesof.allfilingsmadebysuchpartyoranyofitsSubsidiarieswithanystateorfederalcourt,administrativeagency,commissionorotherGovernmentalAuthorityinconnectionwiththisAgreementandthetransactionscontemplate'dhereby.,(q)RATEMATTERS.EachofBrooklyhUnionandLILCOshall,andshallcauseitsSubsidiariesto,notifytheotherofanychangesinitsoritsSubsidiaries'atesorcharges(otlierthanpass-throughfuelandgasratesorcharges),standardsofserviceoraccountingfromthoseineffectonthedatehereof,andnopartywillmakeanyfilingtochangeitsratesonfilewiththeNewYorkStatePublicServiceCommission(the"PSC")thatwouldhaveamaterialadverseeffectonthebenefitsassociatedwiththebusinesscombinationprovidedforherein.(r)THIRD-PARTYCONSENTS.BrooklynUnionshall,andshallcauseitsSubsidiariesto,useallcommerciallyreasonableeffortstoobtainallBrooklynUnionRequiredConsents.BrooklynUnionshallpromptlynotifyLILCOofanyfailureorprospectivefailuretoobtainanysuchconsentsand,ifrequestedbyLILCO,shallprovidecopiesofallBrooklynUnionRequiredConscntsobtainedbyBrooklynUniontoLILCO.LILCOshall,andshallcauseitsSubsidiariesto,useallcommerciallyreasonableeffortstoobtainallLILCORequiredConsents.LILCOshallpromptlynotifyBrooklynUnionofanyfailureorprospective,failuretoobtainanysuchconsentsand,ifrequestedbyBrooklynUnion,shallprovidecopiesofallLILCORequiredConsentsobtainedbyLILCOtoBrooklynUnion.(s)NOBREACH,ETC.Nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,willfullytakeanyactionthatwouldorisreasonablylikelytoresultinamaterialbreachofanyprovisionofthisAgreement,theBrooklynUnionStockOptionAgreementortheLILCOStockOptionAgreement,asthecasemaybe,or,inanyofitsrepresentationsandwarrantiessetforthinthisAgreement,theBrooklynUnionStockOptionAgreement,ortheLILCOStockOptionAgreement,asthecasemaybe,beinguntrueonand~asoftheClosingDate.(t)TAX-EXEMPTSTATUS.Nopartyshall,norshallany"partypermitanySubsidiaryto,takeanyactionthatwouldlikelyjeopardizethequalificationofBrooklynUnion'sorLILCO'soutstandingrevenue'ondswhichqualifyonthedatehereofunderSection142(a)oftheCodeas"exemptfacilitybonds"orastax-exemptindustrialdevelopmentbondsunderSection103(b)(4)oftheInternalRevenueCodeof1954,as~amended,priortotheTaxReformActof1986.(u)COMPANYACTIONS.LILCOandBrooklynUnionshallcausetheCompanytotakeonlythoseactions,fromthedatehereofuntiltheEffectiveTime,thatarerequiredorcontemplatedbythisAgreementto'besotakenbytheCompany,including,withoutlimitation,thedeclaration,filingorregistrationwith,ornoticetoorauthoriiation,consentorapprovalof,'anyGovernmentalAuthority,assetforthinSection4.4(b)oftheBrooklynUnion"Disclosure'Sch'edule,Section4.4(c)oftheBrooklynUnionDfsclosureSchedule,Section5.4(b)oftheLILCODisclosureScheduleandSection5.4(c)oftheLILCODisclosureSchedule.(v)TAXMATTERS.ExceptassetforthinSection6.1(w)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,nopartyshallmakeorrescindanymaterialexpressordeemedelectionrelatingtotaxes,settleorcompromiseanymaterialclaim,action,suit,litigation,A-25 0proceeding,arbitration,investigation,auditorcontroversyrelatingtotaxes,orchangeanyofitsmethodsofreportingincomeordeductionsforfederalincometaxpurposesfromthoseemployedinthepreparationofitsfederalincometaxreturnforthetaxableyearendingSeptember30,1995inthecaseofBrooklynUnionandDecember31,1995inthecaseofLILCO,exceptasmayberequiredbyapplicablelaw.(w)DISCHARGEOFLIABILITIES.Nopartyshallpay,dischargeorsatisfyanymaterialclaims,liabilitiesorobligations(whetherabsolute,accrued,assertedorunasserted,contingentorotherwise),otherthanthepayment,dischargeorsatisfaction,inthcordinarycourSeOfbusinessconsistentwithpastpractice(whichincludesthepaymentoffinalandunappealablejudgments)orinaccordance.withtheirterms,ofliabilitiesreflectedorreservedagainstin,orcontentplatcdby,themost,recentconsolidatedfinancialstatements(orthenotesthereto)ofsuchpartyincludedinsuchparty'sreportsfiledwiththeSEC,orincurredintheordinarycourseofbusinessconsistentwithJiastpractice,andotherthanthepaymentbyBrooklynUnionorLILCOofcertaintransfettaxeswhichmayresultfromtheTransactionsunderNewYorklaw.(x)CONTRACTS.Nopartyshall,exceptintheordinarycourseofbusinessconsistentwithpastpractice,modify,amend,terminate,reneworfailtousereasonablebusinesseffortstorenewanymaterialcontractoragreementtowhichsuchpartyoranySubsidiaryofsuchpartyisapartyorwaive,releaseor.assignanymaterialrightsorclaims.(y)INSURANCE.Eachpartyshall,an'dshallcauseitsSubsidiariesto,maintainwithfinanciallyresponsibleinsurancecompaniesinsuranceinsuchamountsandagainstsuchrisksandlossesasarecustomaryforcompaniesengagedintheelectricandgasutilityindustryandemployingmethodsofgeneratingelectricpowerandfuelsourcessimilartothosemethodsemployedandfuelsusedbysuchpartyoritsSubsidiaries.(z)PERMITS.Eachpartyshall,andshallcauseitsSubsidiariesto,usereasonableeffortstomaintainineffectallexistinggovernmentalpermitspursuanttowhichsuchpartyoritsSubsidiariesoperate.PARTICLEVIIADDITIONALAGREEMENTSSEcTIGN7.1ACCESSTOINFORMATION.Upo'nreasonablenotice,eaclipartyshall,andshallcauseitsSubsidiariesto,affordtotheofficers,directors,empl'oyees,accountants,counsel,'investmentbankers,financialadvisorsandotherrepresentativesoftheother(collectively,"REPRESENTATIVES")reasonableaccess,duringnormalbusinesshoursthroughouttheperiodpriortotheEffectiveTime,toallofitsproperties,books,contracts,commitmentsandrecords(including,butnotlimitedto,TaxReturns)and,duringsuchperiod,eachpartyshall,andshallcauseitsSubsidiariesto,furnishpromptlytotheother(i)accesstoeachreport,scheduleandotherdocumentfiledorreceivedbyitoranyofitsSubsidianespursuanttotherequirementsoffederalorstatesecuritieslawsorfiledwit/orsenttotheSEC,theFERC,theNRC,theDepartment'ofJustice,theFederalTrade,Commission,thePSCoranyotherfederalorstateregulatoryagencyorcommission,and(ii)accesstoallinformationconcerningthemselves,theirsubsidiaries,directors,officersandshareholdersandsuchothermatters"asmaybereasonablyrequestedbytheotherpartyinconnectionwithanyfilings,applicationsorapprovalsrequiredorcontemplatedbythisAgreementorforanyotherreasonrelatedtothetransactionscontemplatedbythisAgreement.Eachpartyshall,andshallcauseitssubsidiariesandRepresentativesto,holdinstrictconfidencealldocumentsandinformationconcerningtheotherfurnishedtoitinconnectionwiththetransactionscontemplatedbythisAgreement(including,withoutlimitation,eachDisclosureSchedule)inaccordancewiththeConfidentialityAgreement,datedOctober24,1995,betweenBrooklynUnionandLILCO,asitmaybeamendedfromtimetotime(the"CONFIDENTIALITYAGREEMENT").A-26 SECfION7.2JOINTPROXYSTATEMENTANDREGISTRATIONSTATEMENT.(a)PREPARATIONANDFILING.ThepartieswillprepareandfilewiththeSECassoonasreasonablypracticableafterthedatehereoftheRegistrationStatementandtheProxyStatement(together,the"JOINTPROXY/REGISTRATIONSTATEMENT").ThepartiesheretoshalleachusereasonableeffortstocausetheRegistrationStatementtobedeclaredeffectiveundertheSecuritiesActaspromptlyaspracticableaftersuchfiling.EachpartyheretoshallalsotakesuchactionasmaybereasonablyrequiredtocausethesharesofCompanyCommonStockissuableinconnectionwiththeTransactionstoberegisteredortoobtain'nexemptionfromregistrationunderapplicablestate"bluesky"'orsecuritieslaws;PROVIDED,HOWEVER,thatnopartyshallberequiredforegisterorqualifyasaforeigncorporationortotakeotheractionwhichwouldsubjectittoserviceofprocessinanyjurisdictionwhereitwillnotbe,followingtheTransactions,sosubject.Eachofthepartiesheretoshallfurnishallinfor'mationconcerningitselfwhichisrequiredorcustomaryforinclusionintheJointProxy/RegistrationStatement.ThepartiesshallusereasonableeffortstocausethesharesofCothpanyCommonStockissuableintheTransactionstobeapprovedforlistingontheNYSEuponofficialnoticeofissuance.TheinformationprovidedbyanypartyheretoforuseintheJointProxy/RegistrationStatementshallbetrueandcorrectinallmaterialrespectswithoutomissionofanymaterialfactwhichisrequiredtomakesuchinformationnotfalseormisleading.Norepresentation,covenantoragreementismadebyanypartyheretowjthrespect,toinformationsuppliedbyanyotherpartyforinclusionintheJointProxy/RegistrationStatement.(b)LETI'EROFBROOKLYNUNION'SACCOUNTANTS.BrooklynUnionshallusebesteffortstocausetobedeliveredtoLILCOaletterofArthurAndersenLLP,dated'a'atewithintwobusinessdaysbeforethedateoftheJointProxy/RegistrationStatement,andaddressedtoLILCO,informandsubstance'reasonablysatisfactorytoLILCOandcustomaryinscopeandsubstancefor"coldcomfort"lettersdeliveredbyindependentpublicaccountantsinconnectionwithregistrationstatementsonFormS-4.(c)LETI'EROFLILCO'SACCOUNTANTS.LILCOshallusebesteffortstocausetobedeliveredtoBrooklynUnionaletterofErnst&YoungLLP,datedadatewithintwobusinessdaysbeforethedateoftheJointProxy/RegistrationStatement,andaddressedtoBrooklynUnion,informandsubstancereasonablysatisfactorytoBrooklynUnionandcustomaryinscopeandsubstancefor"coldcomfort",lettersdeliveredbyindependentpublicaccountantsinconnectionwithregistrationstatementsonFormS-4.(d)FAIRNESSOPINIONS.ItshallbeaconditiontothemailingoftheJointProxy/RegistrationStatementtotheshareholdersofBrooklynUnionandLILCOthat(i)BrooklynUnionshallhavereceivedanopinionfromMerrillLynch,datedthedateoftheJointProxy/RegistrationStatement,totheeffectthat,asofthedatethereof,theOriginalRatioandtheLIPARatioarefairfromafinancialpointofviewtotheholdersofBrooklynUnionCommonStockand(ii)LILCOshallhavereceivedanopinionfromDillonRead,datedthedateoftheJointProxy/RegistrationStatement,totheeffectthat,'asof'thedatethereof,theOriginalRatioandtheLIPARatioarefairfromafinancialpointofviewtotheholders,ofLILCOCommonStock.SEGTIQN7.3REGULATORYMATTERS.(a)HSRFILINGS:EachpartyheretoshallfileorcausetobefiledwiththeFederalTradeCommissionandtheDepartmentofJusticeanynotificationsrequiredtobefiledbytheirrespective"ultimateparent"companiesundertheHart-Scott-RodinoAntitrustImprovementsActof1976,asamended(the"HSRACT"),andtherulesandregulationspromulgatedthereunderwithrespecttothetransactionscontemplatedhereby.Suchpartieswilluseallcommerciallyreasonableeffortstomakesuchfilingspromptlyandtorespondpromptlytoanyrequestsforadditionalinformationmadebyeitherofsuchagencies.H(b)OTHERREGULATORYAPPROVALS.Eachpartyheretoshallcooperateanduseitsbesteffortstopromptlyprepareandfileallnecessarydocumentationandtoeffectallnecessaryapplications,notices,petitions,filingsandotherdocuments',andshalluseallcommerciallyreasonableeffortstoobtainallnecessarypermits,consents,approvalsandauthorizationsofallGovernmentalAuthoritiesnecessaryoradvisabletoconsummatethetransactionscontemplatedbythisAgreement,including,withoutlimitation,theBrooklynUnionRequiredStatutoryApprovalsandtheLILCORequiredStatutoryApprovals.LILCOandBrooklynUnionshallcooperateA-27 ingoodfaithandconsultwitheachotheronallcomponentsof,significantstepstowardsthecompletionof,andsignificantamendmentsto,theapplicationstoobtaintheBrooklynUnionRequiredStatutoryApprovalsandtheLILCORequiredStatutoryApprovals,andwithrespecttomaterialfilings,communications,agreements,arrangementsorconsents,writtenororal,formalorinformal,relatingtoapplicationsforsuchApprovals.4Si:.ceo'.4SHAREHOLDERAPPROVAL.(a)APPROVALOFLILCOSHAREHOLDERS.Subjecttothe'provisionsofSECTION7.4(c)andSECTION7.4(d),LILCOshall,assoonasreasonablypracticableafterthedatehereof(i)takeallstepsnecessarytodulycall,givenoticeof,conveneandholdaspecialmeetingofitsshareholders(the"LILCOSPECIALMEETING")forthepurposeofsecuringtheLILCOShareholders'pproval,(ii)distributetoitsshareholdersthe'JointProxy/RegistrationStatementinaccordancewithapplicablefederalandstatelawandwithitsRestatedCertificateofIncorporationandby-laws,(iii)subjecttothefiduciarydutiesofitsBoardofDirectors,recommendtoitsshareholderstheadoptionofthisAgreementandthetransactionscontemplatedherebyand(iv)cooperateandconsultwithBrooklynUnionwithrespecttoeachoftheforegoingmatters.(b)APPROVALOFBROOKLYNUNIONSHAREHOLDERS.SubjecttotheprovisionsofSECTION7.4(c)andSECTION7.4(d),BrooklynUnionshall,ass'oonasreasonablypracticableafterthedatehereof(i)takeallstepsnecessarytodulycall,givenoticeof,con'veneandholdaspecialmeetingofitsshareholders(the"BROOKLYNUNIONSPECIALMEETING")forthepurposeofsecuringtheBrooklynUnionShareholders'pproval,(ii)distributetoitsshareholderstheJointProxy/RegistrationStatementinaccordancewithapplicablefederalandstatelawandwithitsRestatedCertificateofIncorporationandby-laws,(iii)subjecttothefiduciarydutiesofitsBoardofDirectors,recommendtoitsshareholderstheadoptionofthisAgreementandthetransactionscontemplatedherebyand(iv)cooperateandconsultwithLILCOwithrespecttoeachoftheforegoingmatters.(c)MEETINGDATE.TheLILCOSpecialMeetingforthepurposeofsecuring,theLILCOShareholders'pprovalandtheBrooklynUnionSpecialMeritingforthepurposeofsecuringtheBrooklynUnionShareholders'pprovalshallbeheldonsuchdatesasBrooklynUnionandLILCOshallmutuallydetermine,actingingoodfaith.(d)FAIRNESSOPINIONSNOTWITHDRAWN.Ifshallbeaconditiontotheobligation'ofBrooklynUniontoholdtheBrooklynUnionSpecialMeefingthattheopinionofMerrillLynch,referredtoinSECTION7.2(d},shallnothavebeenwithdrawn,anditshallbeaconditiontotheobligationofLILCOtoholdtheLILCOSpecialMeetingthattheopinionofDillonRead,referredtoinSECTION7.2(d),shallnothavebeenwithdrawn.SECTION7.5DIRECTORS'NDOFFICERS'NDEMNIFICATION.(a)INDEMNIFICATION.Totheextent,ifany,notprovidedby'anexistingrightofindemnificationorotheragreementorpolicy,fromandaftertheLILCOEffectiveTime,theCompanyshall,tothefullestextentpermittedbyapplicablelaw,indemnify,defendandholdharmlesseachpersonwhoisnow,orhasbeenatanytimepriortoDecember29,1996,orwhobecomespriortotheEffectiveTime,anofficer,directororemployeeofanyofthepartiesheretooranySubsidiarythereof(edchan"INDEMNIFIEDPARTY"andcollectively,the"INDEMNIFtEDPARTIES")against'(i),alllosses,expenses(includingreasonabfeattorneys'eesandexpenses),claims,damagesorliabilitiesor,subjecttotheprovisoofthenextsucceedingsentence,amountspaidinsettlement,arisingoutofactionsoromissionsoccurringatorpriortotheEffectiveTiine(andwhether'assertedorclaimedpriorto,atoraftertheEffectiveTime)thatare,inwholeorinpart,basedonorarisingoutofthefactthatsuchpersonisorwasadirector,officeroremployeeofsuchparty(the"INDEMNIFIEDLIABILITIES"),and(ii)allIndemnifiedLiabilitiestotheextenttheyarebasedonorariseout'oforpertaintothetransactionscontemplatedbythisAgreement.Intheeventofanysuchloss,expense,claim,damageorliability(whetherornotarisingbeforetheEffectiveTime),(i)theCompanyshallpaythereasonablefeesandexpensesof'counselselectedbytheIndemnitiedParties,whichcounselshallbereasonablysatisfactorytotheCompany,promptlyafterstatementsthereforarereceivedandotherwiseadvancetosuchIndemnifiedPartyuponrequestreimbursementofdocumentedexpensesreasonablyincurred,ineither,casetotheextentnotprohibitedbytheA-28 NYBCLanduponreceiptofanyundertakingrequiredbyoftheNYBCL,(ii)theCompanywillcooperateinthedefenseofanysuchmatterand(iii)anydeterminationrequiredtobemadewithrespecttowhetheranIndemnifiedParty'sconductcomplieswiththestandardssetforthunderNewYorklawandtheRestated'CertificateofIncorporationorBy-lawsoftheCompanyshallbemadebyindependent,counselmutuallyacceptabletotheCompanyandtheIndemnifiedParty;PROVIDED,HOWEVER,thattheCompanyshallnotbeliableforanysettlementeffectedwithoutitswrittenconsent(whichconsentshallnotbeunreasonablywithheld).TheIndemnifiedPartiesasagroupmayretain.onlyonelawfirmwithrespecttoeachrelatedmatterexcepttotheextentthereis,intheopinion'ofcounseltoanIndemnifiedParty,underapplicablestandardsofprofessionalconduct,aconfiictonanysignificantissuebetweenpositionsofsuchIndemnifiedPartyandanyotherIndemnifiedPartyorIndemnifiedParties.I(b)INSURANCE.ForaperiodofsixyearsaftertheEffectiveTime,theCompanyshalleither(i)causetobemaintainedineffect,forthebenefitofthosepersonswhowerecoveredbythepoliciesofdirectors'ndofficers'iabilityinsurancemaintained.byLILCO.orBrooklynUnionatDecember29,1996andat.,anytimesubsequenttheretoandpriortotheEffectiveTime,themorefavorableofsuchpolicieswithrespecttotheobligationsoftheCompanysetforthinthisSection7.5or(ii)obtainnewpoliciesofferingsuchcoverageatleastasfavorableasthetermsofthemorefavorableofsuchcurrentinsurancecoverage.(c)SUCCESSORS.IntheeventtheCompanyorany'ofitssuccessorsorassigns(i)consolidateswithormergesintoanyotherpersonandshallnotbethecontinuingorsurvivingcorporationorentityofsuchconsolidationormer'geror(ii)transfersallorsubstantiallyallofitspropertiesandassetstoanyperson,thenandineithersuchcase,properprovisionsshallbemadesothatthesuccessorsandassignsoftheCompanyshallassumetheobligations'setforthinthisSECTION7.5.(d)SURVIVALOFINDEMNIFICATION.Tothefullestextentperinittedbylaw,fro'mandaftertheEffectiveTime,allrightstoindemnificationasofDecember29,1996infavoroftheemployees,agents,directorsandofficersofBrooklynUnion,LILCOandtheirJespectiveSubsidiarieswithrespecttotheiractivitiesas'suchpriortotheEffectiveTime,asprovidedintheirrespectivecertificatesofincorporationandby-lawsineffectonthedatethereof,orotherwiseineffectonDecember29,1996,shallsurvivetheTransactionsandshallcontinueinfullforceandeffectforaperiodofnotlessthansixyearsfromtheEffectiveTime.(e)BENEFIT.TheprovisionsofthisSECTION7.5areintendedtobeforthebenefitof,andshallbeenforceableby,eachIndemnifiedParty,hisorherheirsandhisorherrepresentatives.'ecrroN7.6DISCLOSURESCHEDULES.OnDecember29,1996,(i)LILCOhasdeliveredtoBrooklynUnionaschedule(the"LILCODISCLOSURESCHEDULE"),accompaniedbyacertificatesignedbythechieffinancialofficerofLILCOstatingtheLILCODisclosuieScheduleisbeingdeliver'edpursuanttothisSECTION7.6(i)and(ii)BrooklynUnionhasdeliveredto,LILCOaschedule(the"BROOKLYNUNIONDISCLOSURESCHEDULE"),accompaniedbyacertificatesignedbythechieffinancialofficerofBrooklynUnionstatingtheBrooklynUnionDisclosureScheduleisbeingdeliveredpursuanttothisSECTION7.6(ii).TheBrooklynUnionDisclosureScheduleandtheLILCODisclosureSchedulearecollectivelyreferredtohereinasthe"DISCLOSURESCHEDULES".TheDisclosureSchedulesconstituteanintegralpartofthisAgreementandmodifytherespectiverepresentations,warranties,covenantsoragreementsofthepartiesheretocontainedhereintotheextentthatsuchrepresentations,warranties,covenantsoragreementsexpresslyrefertotheDisclosuieSchedules.Anythingtothecontrary'ontainedhereinorintheDisclosureSchedulesnotwithstanding,anyandallstatements,representations,warrantiesordisclosuressetforthintheDisclosureSchedulesshallbedeemedtohavebeenmadeonandasofDecember29,1996.SEcmoN7.7PUBLICANNOUNCEMENTS.BrooklynUnionandLILCOwill'cooperatewitheachotherinthedevelopmentanddistributionofallnewsreleasesandotherpublicinformationdisclosureswithrespecttothisAgreementoranyofthetransactionscontemplatedherebyandshallnotissueanypublicannouncementorstatementwithrespectheretoortheretothatisinconsistentwithanypublic,announcementorstatementpreviouslymadewiththeconsentofthepartiesheretowithouttheconsentoftheotherparty(whichconsentshallnotbeunreasonablywithheld),exceptasmayberequiredby,law,inwhichcasethepartyrequiredtoissueA-29 theannouncementorstatementshallallowtheotherpartytimetocommentonsuchannouncementorstatementpriortoitsissuance.SEGTIQN7.8RULE145AFFILIATES.Within30daysafterthedateofthisAgreement,BrooklynUnionshallidentifyinalettertoLILCO,andLILCOshallidentifyinalettertoBrooklynUnion,allpersonswhoare,andtosuchperson'sbestknowledgewhowillbeattheClosingDate,affiliatesofBrooklynUnionandLILCO,respectively,assuchtermisusedinRule145undertheSecuritiesAct(orotherwiseunderappltcableSECaccountingreleaseswithrespect.topooling-of-interestsaccountingtreatment).EachofBrooklynUnionandLILCOshalluseallreasonableeffortstocausetheirrespectiveaffiliates(includinganypersonwhomaybedeemedtohavebecomeanaffiliateafterthedateoftheletterreferredtointhepriorsentence)todelivertothe,CompanyonorpriortotheClosingDateawrittenagreementcustomaryfortransactionsofthisnaturethataretobeaccountedforasapoolingofinterestsandinformanilsubstancereasonablysatisfactorytoBrooklynUnionandLILCO.Ifanypersonrefusestoprovidesuchawrittenagreement,theCompanyshall,inlieuofr'eceiptofsuchwrittenagreement,beentitledtoplaceappropriatelegendsonthecertificatesevidencingtheCompanyCommonStocktobereceivedbysuchpersonpursuanttothetermsofthisAgreement,andtoissueappropriatestocktransferinstructionstothetransferagentfortheCompanyCommonStock,totheeffectthatthesharesofCompanyCommon'StockreceivedortobereceivedbysuchpersonpursuanttothetermsofthisAgreementmayonlybesold,transferredorotherwiseconveyed,andtheholderthereofmayonlyreducehisinterestinorrisksrelatingtosuchsharesofCompanyCommonStock,pursuanttoaneffectiveregistrationstatementundertheSecuritiesAct,incompliancewithRule145,asamendedfromtimetotime,orinatransactionwhich,intheopinionoflegalcounselsatisfactorytotheCompany,isexemptfromtheregistrationrequirementsoftheSecuritiesAct.TheforegoingrestrictionsonthetransferabilityofCompanyCommonStockshallapplytoallpurportedsales,transfersandotherconveyancesofthesharesofCompanyCommonStockreceivedortobereceivedbysuchpersonpursuanttothisAgreementandtoallpurportedreductionsintheinterestinorrisksrelatingtosuchsharesofCompanyCommonStock,whetherornotsuchpersonhasexchangedthecertificatespreviouslyevidencingsuchpersons'haresofBrooklynUnionCommonStockorLILCOCommonStock,asthecasemaybe,forcertificatesevidencingsharesofCompanyCommonStockintowhichsuchshareswereconverted.TheProxyStatementandtheRegistrationStatementshalldisclosetheprecedinginareasonablyprominentmanner.St:.crroN7.9EMPLOYEEAGREEMENTS.SubjecttoSECTION7.10,SECTION7.14andSECTION'7,15,theCompanyanditsSubsidiariessftallhonor,withoutmodification,allcontracts,agreements,collectivebargainingagreementsan'dcommitmentsofthepartiespriortoDecember29,1996whichapplytoanycurrentorformeremployeeorcurrentorformerdirectorofthepartieshereto;PROVIDED,HOWEVER,thatthisundertakingisnotintendedtopreventtheCompanyfromettforcingsuchcontracts,agreements,collectivebargainingagreementsandcommitmentsinaccordancewiththeirterms,including,withoutlimitation,anyreservedrighttoamend,modify,suspend,revokeorterminateanysuchcontract,agreement,collectivebargainingagreementorcommitment.SEcrtoN7.10EMPLOYEEBENEFITPLANS.SubjecttoSECTION6.1(i),eachoftheBrooklynUnionBenefitPlansandLILCOBenefitPlansineffectatDecember29,1996shallbemaintainedineffectwithrespecttotheemployeesorformeremployeesofBrooklynUnionandanyofitsSubsidiaries,ontheonehand,andofLILCOandanyofitsSubsidiaries,ontheotherhand,respectively,whoarecoveredbyanysuchbenefitplanimmediatelypriortotheClosingDate(the"AFFILIATEDEMPLOYEES")untiltheCompanyotherwisedeterminesaftertheEffectiveTime;PROVIDED,HOWEVER,th'atnothinghereincontainedshalllimitanyreservedrightcontainedinanysuchBrooklynUnionBenefitPlanorLILCOBenefitPlantoamend,modify,suspend,revokeorterminateanysuchplan.Withoutlimitationoftheforegoing,eachparticipantofanysuchBrooklynUnionBenefitPlanorLILCOBenefitPlanshallreceivecreditforpurposesofeligibilitytoparticipate,vesting,benefitaccrualandeligibilitytoreceivebenefitsunderanybenefitplanoftheCompanyoranyofitssubsidiariesoraffiliatesforservicecreditedforthecorrespondingpurpose,undersuchbenefitplan;PROVIDED,HOWEVER,thatsuchcreditingofserviceshallnotoperatetoduplicateanybenefittoanysuchparticipantorthefundingforanysuchbenefit.AnypersonhiredbytheCompanyoranyofitssubsidiariesafter,theClosingDatewhowasnotemployedbyanypartyheretooritssubsidiariesimmediatelypriortotheClosingDateshallA-30 beeligibletoparticipateinsuchbenefitplansmaintained,orcontributedto,bythesubsidiary,divisionoroperationbywhichsuchpersonisemployed,PROVIDEDthatsuchpersonmeetstheeligibilityrequirementsoftheapplicableplan.SECTION7.11STOCKPLANS.(a)LILCOandBrooklynUnionshalltakeallactionrequiredtoterminatetheirrespectiveemployeestockoption,stockpurchaseandothersimilarstockplansconcurrentwiththeEffectiveTime.(b)Atthe,BrooklynUnionEffectiveTime,(i)eachshareofBrooklynUnionCommonStock(includingfractionalanduncertificatedshares)heldunderBrooklynUnion'sDividendReinvestmentandStockPurchasePlan(the"DIVIDENDREINVESTMENTPLAN")orBrooklynUnion's,EmployeeSavingsPlan,DiscountStockPurchasePlanfor'mployeesandLong-TermPerformanceIncentiveCompensationPlan(eacha"BROOKLYNUNIONPLAN"andcollectivelythe"BROOKLYNUNIONPLANS")immediatelypriortotheBrooklynUnionEffectiveTimeshallbeautomaticallyexchangedforalikenumberofshares(includingfractionalanduncertificatedshares)ofCompanyCommonStock,whichsharesshallbeheldunderandpursuanttotheDividendReinvestmentPlanorbeissuedundersuchBrooklynUnionPlan,asthecasemaybe,and(ii)eachunexpiredandunexercisedoptiontopurchasesharesofBrooklynUnionCommonStock("BROOKLYNUNIONOPTION")undertheLong-TermPerformanceIncentiveCompensationPlan(the"INCENTIVEPLAN"),whethervestedorunvested,willbeautomaticallyconvertedintoanoption(a"SUBSTITUTEOPTION"ftopurchaseanumberofsharesofCompanyCommonStockequaltothenumberofsharesofBrooklynUnionCommonStockthatcouldhavebeenpurchasedimmediatelypriortotheBrooklynUnionEffectiveTime(assumingfullvesting)undersuchBrooklynUnionOption,atapricepersliareofCompanyCommonStockequaltothepershareoptionexercisepricespecifiedinsuchBrooklynUnionOption.InaccordancewithSection424(a)oftheCode,eachSubstituteOptionshallprovidetheoptionholderswithrightsandbenefitsthatarenolessandnomorefavorabletohimthanwerepro'videdundertheBrooklynUnionOption.(c)AsoftheBrooklynUnionEffectiveTime,theCompanyshallsucceedtotheDividendReinvestmentPlanasineffectimmediatelypriortotheBrooklynUnionEffectiveTime,andtheDividendReinvestmentPlanshallbeappropriatelymodifiedtoprovidefortheissuanceordeliveryofCompanyCommonStockonandaftertheBrooklynUnionEffectiveTimepursuantthereto.(d)AsoftheBrooklynUnionEffectiveTime,theBrooklynUnionPlansshallbeappropriatelyamendedtoprovidefortheissuanceordeliveryofCompanyCommonStock,andtheCompanyshallagreetoissueordeliverCompanyCommonStockinconnectiontherewith.(e)AttheLILCOEffectiveTime,eachshareofLILCOCommonStock(includingfractionalanduncertificatedshares)held'nderLILCO'sDividendReinvestmentPlan(the"LILCODIVIDENDREINVESTMENTPLAN")orLILCO'sEmployeeStockPurchasePlan,Directors'tockUnitRetainerPlan,Officer'sLongTermIncentivePlanandAnnualStockIncentiveCompensationPlan(eacha"LILCOPLAN"andcolleclivelythe"LILCOPLANS")immediatelypriortotheLILCOEffectiveTimeshallbeautomaticallyexchangedforsuchnumberofshares(includingfractionalanduncertificatedshares)ofCompanyCommonStockaseachshareofLILCOCommonStockisexchangedforpursuanttoSECTION2.1(c),whichsharesshallbeheldunderandpursuanttotheLILCODividendReinvestmentPlanorbeissuedundersuchLILCOPlan,asthecasemaybe.(f)AsoftheLILCOEffectiveTime,theCompanyshallsucceedtotheLILCODividendReinvestmentPlanasineffectimmediatelypriortotheLILCOEffectiveTime,andtheLILCODividendReinvestmentPlanshallbeappropriatelymodifiedtoprovidefortheissuanceordeliveryofCompanyCommonStockonandaftertlieLILCOEffectiveTimepursuantther'eto.(g)AsoftheLILCOEffective'Time,theLILCOPlansshallbeappropriatelyamendedtoprovidefortheissuanceordeliveryofCompanyCommonStock,andtheCompanyshallagreetoissueordeliverCoippanyCommonStockinconnectiontherewith.
(h)IftheLIPAAgreementhasnotbeenterminated,theninconnectionwiththeconsummationofthetransactionscontemplatedbySECTION2.1(orSECTIONS2.1(a)and7.18(b)iftheTransactionsaretobeconsummatedpursuanttoSECTION7.18(b)),BrooklynUnionandLILCOshallcausetheCompanytoissueanappropriateamountofpreferredstockoftheCompanytosuchpersons(whichpersonsmayinclude,amongothers,employeebenefitplans,'mployees,officersanddirectorsofBrooklynUnionorLILCO)anduponsuchtermssoastocausetheformationoftheCompanytobeatransactiontowhichSection351oftheCodedoesnotapply.SEGTIQN7.12NOSOLICITATIONS.Eachpartyheretoshallnot,andeachsuchpartyshallcauseitsSubsidiariesnotto,permitanyofitsRepresentativesto,andshalluseitsbesteffortstocausesuchpersonsnotto,directlyorindirectlyinitiate,solicitorencourage,ortakeanyactiontofacilitatethemakingof,anyofferor,proposalwhichconstitutesorisreasonablylikelytoleadt0,anyBusinessCombinationProposal(asdefinedbelow),or,intheeventofanunsolicitedBusinessCombinationProposal,excepttotheextentrequiredbytheirfiduciarydutiesunderapplicablelawifsoadvisedinawrittenopinionofoutsidecounsel,engageinnegotiationsorprovideanyinformationordatatoanypersonrelatingtoany'BusinessCombinationProposal.Eachpartyheretoshallnotifytheotherpartyorallyandinwritingofanysuchinquiries,offersorproposals(including,withoutlimitation,thetermsandconditionsofanysuchproposalandtheidentityofthepersonmakingit),within24hoursofthereceiptthereof,shallkeeptheotherpartyinformedofthestatusanddetailsofanysuchinquiry,offerorproposal,andshallgivetheotherpartyfivedays'dvancenoticeofanyagreementtobeenteredintowithoranyinformationtobesuppliedtoanypersonmakingsuchinquiry,offerorproposal.Eachpartyheretoshallimmediatelyceaseandcausetobeterminatedallexistingdiscussionsandnegotiations,ifany,withanypartiesconductedheretoforewithrespecttoanyBusinessCombinationProposal.AsusedinthisSECTION7.12,"BUSINESSCOMBINATIONPROPOSAL"shallmeananytenderorexchangeoffer,proposalforamerger,consolidationorotherbusinesscombinationinvolvingany'artytothisAgreementoranyofitsmaterialsubsidiaries,oranypropo'sal'oroffer(in,eachcase,whetherornotinwritingandwhetherornotdeliveredtothestockholdersofapartygenerally)toacquireinanymanner,directlyorindirectly,asubstantialequityinterestinorasubstantialportionoftheassetsofanypartytothisAgreementoranyofitsmaterialsubsidiaries,otherthanpursuanttothetransactionscontemplatedbythisAgreementandbytheLIPAAgreement.FromthedatehereofuntiltheterminationorconsummationofthetransactionscontemplatedbythisAgreement,neitherpartyshallengageinanynegotiationsormaterialdiscussionswiththeLongIslandPowerAuthority("LIPA")oritsrepresentativesoragentswithoutpriornotificationtoorthepresenceoftheotherpartyhereto,andwillnotprovideanyinformationordatatoLIPAwithoutprovidingacopythereoftotheotherpartyhereto.Nothingcontainedhereinshallprohibitaparty'fromtakinganddisclosingtoitsstockholdersapositioncontemplatedbyRule14e-2(a)undertheExchangeActwithrespecttoaBusinessCombinationProposalbymeansofatenderoffer.IfSecnow7.13COMPANYBOARDOFDIRECTORS.ThenumberofdirectorscomprisingthefullBoardofDirectorsoftheCompanyattheEffectiveTimeshallbe,15persons,sixofwhomshallbedesignatedbyBrooklynUnionpriortotheEffectiveTime,sixofwhomshallbedesignatedbyLILCOpriortotheEffectiveTimeandthreeofwhomshallbedesignatedbyacommitteeconsistingoftwocurrentBrookly'nUniondirectorsandtwocurrentLILCOdirectors.0SEGTIQN7.14SENIOREXECUTIVES.Dr.WilliamJ.CatacosinosshallbetheChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheCompanycommencingatth'eEffectiveTime.AtthefirstanniversaryoftheEffectiveTime,Dr.CatacosinosshallceasetobetheChiefExecutiveOfficer,shallcontinuetobeChairmanoftheBoardandChairmanoftheExecutiveCommitteeandshallbecomeaconsultantoftheCompany.Mr.RobertB.CatellshallbethePresidentandChiefOperatingOfficeroftheCompanycommencingattheEffectiveTimeandshallsucceedDr.CatacosinosasChiefExecutiveOfficeroftheCompany,commencingonsuchfirstanniversary.ThearrangementstocausesuchelectionstotakeplaceatthefirstanniversaryoftheEffectiveTimecontemplatedbytheprecedingsentencemaybealteredonlybyavote,followingtheEffectiveTime,oftwo-thirdsoftheentireBoardofDirectorsoftheCompany.EachofthepartiesheretoshalltakesuchactionasshallreasonablybedeemedbyanyofthemtobeadvisableinordertogiveeffecttotheprovisionsofthisSection7.14.0A-32 tSt:cnoN7.15EXPENSES.SubjecttoSECTION9.3,allcostsandexpenses'incurredinconnectionwiththisAgreementandthetransactionsconteinplatedherebyshallbepaidbythepartyincurringsuchexpenses,exceptthatthoseexpensesincurredinconnectionwithprintingtheJointProxy/RegistrationStatement,aswellasthefilingfeerelatingtheretoandanyexpensesincurredundertheHSRAct,shallbesharedequallybyBrooklynUnionandLILCO.SEGTIQN7.16FURTHERASSURANCES.Eachpartywill,andwillcauseitsSubsidiariesto,executesuchfurtherdocumentsandinstrumentsandtakesuchfurtheractionsasmayreasonablyberequestedbyanyotherpartyinordertoconsummatetheTransactionsinaccordancewiththetermshereof.SEGTIQN7.17POST-EXCHANGEOPERATIONS.'ubjectfothetransactionscontemplatedbytheLIPAAgreement,followingtheEffectiveTime,BrooklynUnion,ontheonehand,andLILCO,ontheotherhand,shallcontinuetheirseparatecorporateexistences,operatingunderthenamesof"THEBROOKLYNUNIONGASCOMPANY"and"LONGISLANDLIGHTINGCOMPANY",respectively,untilsuchtimeasisotherwisedeterminedbytheBoardofDirectorsoftheCompany.ThenameoftheCompanyshallbe"BL",orsuchothernameasmaybeagreedbyBrooklynUnionandLILCOpriortotheClosing(whichshallnotbethenameof,oranamesubstantiallysimilarto,BrooklynUnionorLILCO).Thecertificateofincorporationandby-lawsoftheCompanyshallbeamendedpriortotheEffectiveTimeinamannerreasonablyacceptabletoBrooklynUnionandLILCO.SEcTIQN7.18OTHERTRANSACTIONS(a)Thepartiesheretoherebyconseitttotheexecutionanddeliveryof,andperformanceofthe'ransactionscontemplatedby,theLIPAAgreementandtheKeySpanExchangeAgreement,andwaiveallbreachesofrepresentations,warranties,covenantsandconditionscontainedhereinarisingtherefrom.t'(b)IntheeventthatalloftheconditionstoeachofthisAgreementandtheLIPAAgreementhavebeensatisfiedorwaivedandeachofBrooklynUnion,LILCOandLIPAhasindicatedtotheotherpartiesthatitisready,willingandabletoconsummatethetransactionscontemplatedbythisAgreementandtheLIPAAgreement,thentheShareExchangeshallnotbeconsummatedandtheother,transactionscontemplatedherebyandtherebyshallbeconsummatedinthefollowingmannerandor'der:(i)thetransferbyLILCOoftheTransferredAssets(as.definedintheLIPAAgreement)tosuchsubsidiariesoftheCompanyasBrooklynUnionandLILCOshalldirectinexchangefortheDesignatedNumber(ashereinafterdefined)ofsliaresofCompanyCommonStockandupto$75millionfaceamountofpreferredstockoftheCompany("CompanyPreferredStock")ascontemplatedbytheLIPAAgreement.'he"DesignatedNumber"shallbethenumberofsharesofCompanyCommonStockrepresentingthenetfairmarketvalueoftheTransferredAssets,asshallbedeterminedingoodfaithbyBrooklynUnionandLILCO,lesssuchfaceamountofCompanyPreferredStock;(ii)themergerofLIPAAcquisitionCorp.withandintoLILCOandtherelatedtransactionscontemplatedbytheLIPAAgreement(includingallschedulesandexhibitsthereto)tooccuronorpriortotheeffectivetimeofsuchmerger(the"LIPAEFFECTIVETIME")shallbeorshallhavebeenconsummated,and,attheLIPAEffective'Time,theCashPurchasePrice(asdefinedintheLIPAAgreement)shallbepaidtotheExchangeAgent(asdefinedundertheLIPAAgreement)asagentfor'heholdersofLILCOCommonStocktosubscribeforandpurchaseanumberofsharesofCompanyCommonStock,whichnumberofshareswhenaddedtotheDesignatedNumbershallrepresentthenumberofsharesofLILCOCommonStockissuedandoutstandingimmediatelypriortotheLILCOEffectiveTime,otherthanDissentingShares,multipliedbytheLIPARatio;and(iii)promptlythereafter,theMergershallbeconsummated.(c)InconnectionwiththeL'IPAAgreement,LILCOandBrooklynUnioncontemplatetheformationofalimitedpartnershipforthepurposeofpurchasinginterest,ratehedge-contracts,tobefundedthroughcapitalcontributionsofupto$30millionbyeachofthem(theformationofsuchlimitedpartnershipandthepurchaseA-33 ofsuchcontractsbeingreferredtohereinasthe"HEDGEARRANGEMENTS").ThepartiesherebyconsenttotheHedgeArrangementsandwaiveallbreachesofrepresentations,warranties,covenantsandconditionsarisingtherefrom.I(d)Notwithstandinganyprovisionhereintothecontrary,LILCOshallnotmodify,amendorterminatetheLIPAAgreement(onceandasithasbeenenteredintobythepartiesthereto),andshallnotprovideanyconsent,waiverorreleasethereunderwithoutthepriorwrittenconsentofBrooklynUnion.1SEcrioN7.19EMPLOYMENTAGREEMENT.(a)TheCompany'hallenterintoanemploymentagreementwithMr.CatelleffectiveasoftheEffectiveTimeprovidingforhimtoassume'thepositionsdescribedinSection7.14atthetimesspecifiedtherein,forhimtocontinuetoserveasChiefExecutiveOfficerforafouryearperiodcommencingonthefirstanniversaryoftheEffectiveTime,forhimtoreceivecompensation(includingincentivecompensationrelatingtorealizingthesynergiescontemplatedtoberealizedfromtheTransactions)ontermsmutuallyagreedtoandinanyeventinanamountnotlessthanwhathereceivesasofDecember29,1996aswellasreasonableincreases,andotherwisecontainingtermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.k(b)TheCompanyshallenterintoanemploymentagreementwithDr.CatacosinoseffectiveasoftheEffectiveTimeprovidingforhimtoassumethepositionsdescribedinSection7.14atthetimesspecifiedtherein,forhimtoserveasaconsultanttotheCompanyforafiveyearperiodcommencingafterheceasesbeingChiefExecutiveOfficer,forhimtoreceivecompensation(includingincentivecompensationofthekinddescribedinSection7.19(a))ontermsmutuallyagreedtoandinanyeventin'anamountnotlessthanwhathereceivesasofDecember29,1996aswellasreasonableincreases,andotherwisecontainingtermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.,SEGTIQN7.20HOLDINGCOMPANY.PriortotheLILCOEffectiveTime,orifthetransactionscontemplatedherebyaretobeconsummatedpursuanttoSection,7.18(b),theLIPAEffectiveTime,LILCOandBrooklynUnionshallcausetheCompanytobeformedasaNewYorkcorporationforthepurposeofconsummatin'gthetransactionscontemplatedhereby,whichcorporationshallbe66%ownedbyLILCOand34%ownedbyBrooklynUnionimmediatelypriortotheLILCOEffectiveTime.ARTICLEVIIICONDITIONSSEcTioN8.1CONDITIONSTOEACHPARTY'SOBLIGATIONTOEFFECTTHETRANSACTIONS.TherespectiveobligationsofthepartiestoeffecttheTransactionsshallbesubjecttothesatisfactiononorpriortotheClosingDateofthefollowingconditions,"except,totheextentpermittedbyapplicablelaw,thatsuchconditionsmaybewaivedinwritingpursuantto'SECTION9.5bythejointactionofthepartieshereto:(a)SHAREHOLDERAPPROVALS.TheLILCOShareholders'pprovalandtheBrooklynUnionShareholders'pprovalshallhavebeenobtained.(b)NOINJUNCTION.Notemporaryrestrainingorderorpreliminaryorpermanentinjunctionorotherorderbyanyfederalorstatecourtpreventingconsummationof,theTransactionsShallhavebeenissuedandbecontinuingineffect,andtheTransactionsandtheothertransactionscontemplatedherebyshallnothavebeenprohibitedunderanyapplicablefederalorstatelaworregulation.(c)REGISTRATIONSTATEMENT.TheRegistrationStatementshallhavebecomeeffectiveinaccordancewiththeprovisionsoftheSecuritiesAct,andnostopordersuspendingsucheffectivenessshallhavebeenissuedandremainineffect.A-34 (d)LISTINGOFSHARES.ThesharesofCompanyCommonStockissuableintheTransactionspursuanttoARTICLEII(includingsharesissuableunderoptions)shallhavebeenapprovedforlistingontheNYSEuponofficialnoticeofissuance.(e)STATUTORYAPPROVALS.TheBrooklynUnionRequiredStatutoryApprovalsandtheLILCORequiredStatutoryApprovalsshallhavebeenobtainedatorpriortotheBrooklynUnionEffectiveTimeandtheLILCOEffectiveTime,suchapprovalsshallhavebecomeFinalOrders(asdefinedbelow)andsuchFinalOrdersshallnotimposetermsorconditionswhich,intheaggregate,wouldhave,orinsofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financialconditionorresultsofoperationsoftheCompanyanditsprospectivesubsidiariestakenasawholeorwhichwouldbemateriallyinconsistentwiththeagreementsofthepartiescontainedherein.IfthetransactionscontemplatedbytheLIPAAgreementwillnotbeconsummatedcontemporaneouslywiththeconsummationofthetransactionscontemplatedhereby,theFinalOrderrelatingtotheapprovalofthetransactionscontemplatedherebytobereceivedfromthePSCshallincludethePSC'sapproval,withinthestatutoryauthorityofthePSC,ofratespermittedtobechargedbytheCompanyanditssubsidiariestotheircustomerswhichwillbeincorporatedinalongtermrateagreementtheeffectofwhichcouldnotreasonablybeexpectedtohaveamaterialadverseeffectonthebusiness;assets,financialcondition,resultsofopemtionsorprospectsoftheCompanyanditssubsidiariestakenasawhole.Forpurposesofthisprovision,theprospectsoftheCompanyandifssubsidiariesshallmeanthecombinationoftheresultsanticipatedbytheregulatedearningsforecastsofBrooklynUnionprovidedtoLILCOundercoverofamemorandumdatedDecember29,1996,andtheresultsanticipatedbytheregulatedearningsforecastsofLILCOprovidedtoBrooklynUnionundercoverofamemorandumdatedDecember29,1996.A"FINALORDER"meansactionbytherelevantregulatoryauthoritywhichhasnotbeenreversed,stayed,enjoined,setaside,annulledorsuspended,withrespecttowhichanywaitingperiodprescribedbylawbeforethetransactionscontemplatedherebymaybeconsummatedhasexpired,andastowhichallconditionstotheconsummationofsuchtransactionsprescribedbylaw,regulationororderhavebeensatisfied.(f)POOLING.UnlesstheLIPATransactionhasbeenconsummated,"or'willbeconsummatedcontemporaneouslywiththeTransactions,eachofBrooklynUnionandLILCOshallhavereceivedaletterofitsindependentpublicaccountants,datedtheClosingDate,informandsubstancereasonablysatisfactory,ineachcase,toBrooklynUnionandLILCO,statingthatthetransactionseffectedpursuanttothisAgreementwillqualifyasapoolingofintereststransactionunderGAAP.(g)PREFERREDSTOCK.UnlesstheLIPAAgreementhasbeenterininated,theCompanyshallhaveissuedsharesofpreferredstockoftheCompanyassetforthinSECTIONS7.11(h).(h)TAXOPINION.LILCOsliallhavereceivedanopinionofHunton&WilliamssatisfactoryinformandsubstancetoLILCO,datedasoftheClosingDate,totheeffectthattheShareExchangewillnotbetaxabletonon-dissentingholdersofLILCOCommonStockand(exceptwithrespecttothereceiptofcashinlieuoffractionalshares)willsatisfytherequirementsofSection351oftheCode;PROVIDED,HOWEVER,thatthisconditionwillnotberequiredtobesatisfiedunlesstheLIPAAgreementhasbeenterminated.St:.crtoz8.2CONDITIONSTOOBLIGATIONOFLILCOTOEFFECTTHETRANSACTIONS.TheobligationofLILCOtoeffecttheTransactionsshallbefurthersubjecttothesatisfaction,onorpriortotheClosingDate,ofthefollowingconditions,exceptasmaybewaivedbyLILCOinwritingpursuanttoSECTION9.5:(a)PERFORMANCEOFOBLIGATIONSOFBROOKLYNUNION."BrooklynUnion(and/oritsappropriateSubsidiaries)shallhaveperformeditsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)andshallhaveperformedinallmaterialrespectsitsotheragreementsandcovenantscontainedinorcontemplatedbythisAgreementandtheBrooklynUnionStockOptionAgreementrequiredtobeperformedbyitatorpriortotheBrooklynUnionEffectiveTime.,'(b)REPRESENTATIONSANDWARRANTIES.TherepresentationsandwarrantiesofBrooklynUnionsetforthinthisAgreementandtheBrooklynUnionStockOptionAgreementshallbetrueandcorrectA-35 (i)onandasofDecember29,1996and(ii)onandasoftheClosingDatewiththesameeffectasthoughsuchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonlyasofaspecificdateortimeotherthanDecember29,1996ortheClosingDatewhichneedonlybetrueandcorrectasofsuchdateortime)exceptineachofcases(i)and(ii)forsuchfailuresofrepresentationsorwarrantiestobetrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtherein)which,individuallyorintheaggregate,wouldnotbereasonablylikelytoresultinaBrooklynUnionMaterialAdverseEffect.(c)CLOSINGCERTIFICATES."LILCOshallhavereceivedacertificatesignedonbehalfofBrooklynUnionbythechieffinancialofficerofBrooklynUnion,datedtheClosingDate,totheeffectthat,tothebestofsuchofficer'sknowledge,theconditionssetforthinSECTION8.2(a)andSECTION8.2(b)havebeensatisfied.(d)BROOKLYNUNIONMATERIALADVERSEEFFECT.NoBrooklynUnionMaterialAdverseEffectshallhaveoccurredandthereshallexistnofactorcircumstancewhichisreasonablylikelytohaveaBrooklynUnionMaterialAdverseEffect.(e)BROOKLYNUNIONREQUIREDCONSENTS.TheBrooklynUnionRequiredConsentsshallhavebeenobtained,exceptforthoseconsentsthefailureofwhichtoobtainwouldhaveaBrooklynUnionMaterialAdverseEffect.ISECI'lON8.3CONDITIONSTOOBLIGATIONOFBROOKLYNUNIONTOEFFECTTHETRANSACTIONS.TheobligationofBrooklynUniontoeffecttheTransactionsshallbefurthersubjecttothesatisfaction,onorpriortotheClosingDate,ofthefollowingconditions,exceptasmaybewaivedbyBrooklynUnioninwritingpursuanttoSECTION9.5:(a)PERFORMANCEOFOBLIGATIONSOFLILCO.LILCO(and/oritsappropriateSubsidiaries)shallhaveperformed'itsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)andshallhaveperformedinallmaterialrespectsitsotheragreementsandcovenantscontainedinorcontemplatedbythisAgreementandtheLILCOStockOptionAgreementrequiredtobeperformedatorpriortotheLILCOEffectiveTime.(b)REPRESENTATIONSANDWARRANTIES.TherepresentationsandwarrantiesofLILCOsetforthinthisAgreementandtheLILCOStockOptionAgreementshallbetrueandcorrect(i)onandasofDecember29,1996and(ii)onandasoftheClosingDatewiththesameeffectasthoughsuchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonly,asofaspecificdateortimeotherthanDecember29,1996ortheClosingDatewhichneedonlybetrueandcorrectasofsuchdateortime)exceptineachofcases(i)and(ii)forsuchfailuresofrepresentationsorwarrantiestobetrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtherein)which,individuallyorintheaggregate,wouldnotbereasonablylikelytoresultinaLILCOMaterial'dverseEffect.(c)CLOSINGCERTIFICATES.BrooklynUnionshallhavereceivedacertificatesignedonbehalfofLILCObythechieffinancialofficerofLILCO,datedtheClosingDate,totheeffectthat,tothebestofsuchofficer'sknowledge,theconditionssetforthinSECTION8.3(a)andSECTION8.3(b)havebeensatisfied.(d)LILCOMATERIALADVERSEEFFECT.,NoLILCOMaterialAdverseEffectshallhaveoccurredandthereshallexistnofactorcircumstancewhichisreasonablylikelytohaveaLILCOMaterialAdverseEffect.(e)TAXOPINION.BrooklynUnionshallhavereceivedanopinionofWachtell,Lipton,Rosen&KatzsatisfactoryinformandsubstancetoBrooklynUnion,datedasoftheClosingDate,whichopinionmaybebasedonappropriaterepresentationsofBrooklynUnion,KeySpanandtheCompany,totheeffectthattheMergerwillqualifyasareorganizationpursuanttoSection368oftheCode.A-36 (f)LILCOREQUIREDCONSENTS.'fheLILCORequiredConsentsshallhavebeenobtained,exceptforthosethefailureofwhichtoobtainwouldhaveaLILCOMaterialAdverseEffect.ARTICLEIXTERMINATION>AMENDMENTANDWAIVERSEcfioN9.1TERMINATION.ThisAgreementmay'eterminatedatanytimepriortotheClosingDate,whetherbeforeorafterapprovalbytheshareholdersoftherespectivepartiesheretocontemplatedbythisAgreement:(a)bymutual'writtenconsentoftheBoardsofDirectorsofBrooklynUnionandLILCO;(b)byanypartyhereto,bywrittennoticetotheotherparties,iftheEffectiveTimeshallnothaveoccurredonorbeforeAugust31,1998(the"INITIALTERMINATIONDATE");PROVIDED,HOWEVER,thattherighttoterminatetheAgreementunderthisSECTION9.1(b)shallnotbeavailabletoanypartywhosefailuretofulfillanyobligationunderthisAgreementhasbeenthecauseof,orresultedin,thefailureoftheEffectiveTimetooccuronorbeforethisdate;andPROVIDED,FURTHER,thatifontheInitialTerminationDatetheconditionstotheClosingsetforthinSECTIONS8.1(e),8.2(e)and/or8.3(f),shallnothavebeenfulfilledbutallotherconditionstotheClo'singshallbefulfilledorshallbecapableofbeingfulfilled,thentheInitialTerminationDateshallbeextendedtoApril28,1999;andPROVIDED,FURTHER,thatLILCOshallnothavetherighttoterminatethisAgreementpursuanttothisSection9.1(b)iftheLIPAAgreementhasnotbeenterminated;(c)byanypartyhereto,bywrittennoticetotheotherparties,iftheLILCOShareholders'pprovalshallnothavebeenobtainedatadulyheldLILCOSpecialMeeting,includinganyadjournmentsthereof,or'heBrooklynUnionShareholders'pprovalshallnot,havebeenobtainedatadulyheldBrooklynUnionSpecialMeeting,includinganyadjournmentsthereof;(d)byanypartyhereto,ifanystateorfederallaw,order,ruleorregulationisadoptedorissued,whichhastheeffect,assupportedbythewrittenopinionofoutsidecounselacceptabletothepartieshereto,ofprohibitingtheTransactions,orbyanypartyheretoifanycourtofcompetentjurisdictionintheUnitedStatesoranyStateshallhaveissuedanorder,judgmentordecreepermanentlyrestraining,enjoiningorotherwiseprohibitingtheTransactions,andsuchorder,judgmentordecreeshallhavebecomefinalandnonappealable;(e)byLILCO,upontwodays'riornoticetoBrooklynUnion,if,asaresultofatenderofferoranywrittenofferorproposalwithrespecttoamerger,saleof'amaterialportionofitsassetsorotherbusinesscombination(each,a"BUSINESSCOMBINATION")byapartyotherthanBrooklynUnionoranyofitsaffiliatesorLIPAoranyofitsaffiliates,theBoardofDirectorsofLILCOdeterminesingoodfaiththattheirfiduciaryobligationsunderapplicablelawrequirethatsuchtenderofferorotherwrittenofferorproposalbeaccepted;PROVIDED,HOWEVER,that(i)theBoardofDirectorsofLILCOshallhavebeenadvisedinawrittenopinionofoutsidecounselthatnotwithstandingabindingcommitmenttoconsummateanagreementofthenatureofthisAgreemententeredintointheproperexerciseoftheirapplicablefiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbyBrooklynUnioninnegotiationsentered-intopursuanttoCLAUSE(ii)below,suchfiduciarydutieswouldalsorequirethedirectorstoreconsidersuchcommitmentasaresultofsuchtenderofferorotherwrittenofferorproposal;and(ii)priortoanysuchtermination,LILCOshall,andshallcauseitsrespectivefinancialandlegaladvisorsto,negotiatewithBrooklynUniontomakesuchadjustmentsinthetermsandconditionsofthisAgreementaswouldenableLILCOtoproceedwiththetransactionscontemplatedhereinonsuchadjustedterms;(f)byBrooklynUnion,upontwodays'riornoticetoLILCO,if,asaresultofatenderofferbyapartyotherthanLILCOoranyofitsaffiliatesoranywrittenofferorproposalwithrespecttoaBusinessCombinationbyapartyotherthanLILCOoranyofitsaffiliates,theBoardofDirectorsofBrooklynUniondeterminesingoodfaiththattheirfiduciaryobligationsunderapplicablelawrequirethatsuchtenderofferA-37 orotherwrittenofferorproposalbeaccepted;PROVIDED,HOWEVER,that(i)theBoardofDirectorsofBrooklynUnionshallhavebeenadvisedinawrittenopinionofoutsidecounselthatnotwithstandingabindingcommitmenttoconsummateanagreementofthenatureofthisAgreemententeredintointheproperexerciseoftheirapplicablefiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbyLILCOinnegotiationsenteredintopursuant'oclause(ii)below,suchfiduciarydutieswouldalsorequirethedirectorstoreconsidersuchcommitmentasaresultofsuchtenderofferorotherwrittenofferorproposal;and(ii)priortoanysuchtermination,BrooklynUnionshall,andshallcauseitsrespectivefinancialandlegaladvisorsto,negotiatewithLILCOtomakesuchadjustmentsinthetermsandconditionsofthisAgreementaswouldenableBrooklynUniontoproceedwiththetransactionscontemplatedhereinonsuchadjustedterms;(g)byBrooklynUnion,bywrittennoticetoLILCO,if(i)thereexistbreachesoftherepresentationsandwarrantiesofLILCOandBLmadehereinasofDecember29,1996whichbreaches,individuallyorintheaggregate,wouldorwouldbereasonablylikelytoresultinaLILCOMaterialAdverseEffect,andsuchbreachesshallnothavebeenremediedwithin20daysafterreceiptbyLILCOofnoticeinwritingfromBrooklynUnion,specifyingthenatureofs'uchbreachesandrequestingthattheyberemedied,(ii)LILCO(and/oritsappropriatesubsidiaries)shallnothaveperformedandcompliedwithitsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)orshallhavefailedtoperformandcomplywith,inallmaterialrespects,its,otheragreementsandcovenantshereunderorundertheLILCOStockOptionAgreementandsuchfailuretoperformorcomplyshallnothavebeenremediedwithin20daysafterreceiptbyLILCOofnoticeinwritingfromBrooklynUnion,specifyingthenatureofsuchfailureandrequestingthatitberemedied;or(iii)theBoardofDirectorsofLILCOoranycommitteethereof(A)shallwithdrawormodifyinanymanneradversetoBrooklynUnionitsapprovalorrecommendationofthisAgreementortheTransactions,(B)shallfailtoreaffirmsuchapprovalorrecommendationuponBrooklynUnion'srequest,(C)shallapproveorrecommendanyacquisitionofLILCOoramaterialportionofitsassetsoranytenderofferforsharesofcapitalstockofLILCO,ineachcase,byapartyotherthanBrooklynUnionoranyofitsaffiliatesandotherthantheLIPAAgreement,asthesamemaybeamendedfromtimetotimewiththeconsentofBrooklynUnion,andthetransactionscontemplatedtherebyor(D)shallresolvetotakeanyoftheactionsspecifiedinCLAUSE(A),(B)or(C);(h)by,LILCO,bywrittennoticetoBrooklynUnion,if(i)thereexistmaterialbreachesoftherepresentationsandwarrantiesofBrooklynUnionmadehereinasofDecember29,1996whichbreaches,individuallyorintheaggregate,wouldorwouldbereasonablylikelytoresultinaBrooklynUnionMaterialAdverseEffect,andsuchbreachesshallnothavebeenremediedwithin20daysafterreceiptbyBrooklynUnionofnoticeinwritingfromLILCO,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)BrooklynUnion(and/oritsappropriatesubsidiaries)shallnothaveperformedandcompliedwithitsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)orshallhavefailedtoperformandcomplywith,inallmaterialrespects,itsotheragreementsandcovenantshereunderorundertheBrooklynUnionStockOptionAgreement,andsuchfailuretoperformorcomplyshallnothavebeenremediedwithin20daysafterreceiptbyBrooklynUnionofnoticeinwritingfromLILCO,specifyingthenatureofsuchfailureandrequestingthatitberemedied;or(iii)theBoardofDirectorsofBrooklynUnionoranycommitteethereof(A)shallwithdrawormodifyinanymanneradversetoLILCOitsapprovalorrecommendationofthisAgreementortheTransactions,(B)shallfailtoreaffirmsuchapprovalorrecommendationuponLILCO'srequest,(C)shallapproveorrecommendanyacquisitionofBrooklynUnionoramaterialportionofitsassetsoranytenderofferforthesharesofcapitalstockofBrooklynUnion,ineachcasebyapartyotherthanLILCOoranyofitsaffiliatesor(D)shallresolvetotakeanyoftheactionsspecifiedinCLAUSE(A),(B)or(C);or(i)byeitherparty,bywrittennoticetotheotherparty,ifanyoftheconditionsofeitherparty'obligationtoeffecttheTransactionscannotbesatisfied.SccrtoN9.2EFFECTOFTERMINATION.IntheeventofterminationofthisAgreementbyeitherBrooklynUnionorLILCOpursuanttoSECTION9.1thereshallbenoliabilityonthepartofeitherBrooklynA-38 UnionorLILCOortheirrespectiveofficersordirectorshereunder,exceptthatSECTION9.3,theagreementcontainedinthelastsentenceofSECTION7.1;SECTION10.2andSECTION10.8shallsurvivethetermination.SECTION9.3TERMINATIONFEE;EXPENSES.(a)TERMINATIONFEEUPONBREACHORWITHDRAWALOFAPPROVAL.IfthisAgreementisterminatedatsuchtimethatthisAgreementisterminablepursuanttoone(butnotboth)of(x)SECTION9.1(g)(i)or(ii)or(y)SECTION9.1(h)(i)or(ii),then:(i)thebreachingpartyshallpromptly(butnotlaterthanfivebusinessdaysafterreceiptofnoticefromthenon-breachingparty)paytothenon-breachingpartyincashanamountequaltoalldocumentedout-of-pocketexpensesandfeesincurredbythenonbreachingparty(including,withoutlimitation,feesandexpensespayabletoalllegal,accounting",financial,publicrelationsandotherprofessionaladvisors)arisingoutof,inconnectionwithorrelatedtothetransactionscontemplatedbythisAgreementnotinexcessof$10million;PROVIDED,HOWEVER,that,ifthisAgreementisterminatedbyapartyasaresultofawillfulbreachbytheotherparty,thenon-breachingpartymaypursueanyremediesavailabletoitatlaworinequityandshall,inadditiontoitsout-of-pocketexpenses(whichshallbepaidasspecifiedaboveandshallnotbelimitedto$10million),beentitledto,retainsuchadditionalamountsassuchnon-breachingpartymaybeentitledtoreceiveatlaworinequity;and(ii)if(x)atthetimeofthebreachingparty'swillfulbreachofthisAgreement,thereshallhavebeenathirdpartytenderofferforsharesof,orathirdpartyofferorproposalwithrespecttoaBusinessCombinationinvolving,suchpartyoranyofitsaffiliateswhichatthetimeofsuchterminationshallnothavebeenrejectedbysuchpartyanditsboardofdirectorsandwithdrawnbythethirdparty,and(y)withintwoandone-halfyearsofanyterminationbythenon-breachingparty,thebreachingpartyoranaffiliatethereofbecomesasubsidiaryofsuchofferororasubsidiaryofanaffiliateofsuchofferororacceptsawrittenoffertoconsummateorconsummatesabusinessCombinationwithsuchofferoror"anaffiliate,thereof,thensuchbreachingparty(jointlyandseverallywithitsaffiliates),uponthesigningofadefinitiveagreementrelatingtosuchaBusinessCombination,or,ifnosuchagreementissignedthenattheclosing(andasaconditiontotheclosing)ofsuchbreachingpartybecomingsuchasubsidiaryorofsuchBusinessCombination,willpaytothenon-breachingpartyincashanadditionalfeeequalto$65million(ifthebreachingpartyisLIE,CO)or$35million(ifthebreachingpartyisBrooklynUnion).(b)ADDITIONALTERMINATIONFEE.If(i)thisAgreement(x)isterminatedbyanypartypursuanttoSECTION9.1(e)orSECTION9.1(f)orSECTION9.1(g)(iii)orSECTION9.1(h)(iii),(y)isterminatedfollowingafailureoftheshareholdersofanyoneofthepartiestograntthenecessaryapprovalsdescribedinSECTION4.13andSECTION5,13or(z)isterminatedasaresultofsuchparty'smaterialbreachofSECTION7.4,and(ii)atthetimeofsuchterminationorpriortothemeetingofsuchparty'sshareholdersthereshallhavebeenathird-partytenderofferforsliaresof,orathird-partyofferorproposalwithrespecttoaBusinessCombinationinvolving,suchpartyoranyofitsaffiliateswhichatthetimeofsuchterminationorofthemeetingofsuchparty'sshareholdersshallnothavebeen(A)rejectedbysuchpartyanditsboardofdirectorsand(B)withdrawnbythethirdparty,and,withintwoandone-halfyearsofanysuchterinination,thepartywhichwasthesubjectofsuchofferorproposal(the"TARGETPARTY")becomesasubsidiaryofsuchofferororasubsidiaryofanaffiliateofsuchofferororacceptsawrittenoffertoconsummateorconsummatesaBusinessCombinationwithsuchofferororanaffiliatethereof,thensuchTargetParty(jointlyandseverallywithitsaffiliates),uponthesigningofadefinitiveagreementrelatingtosuchaBusinessCombination,or,ifnosuchagreementissigned,thenattheclosing(andasaconditiontotheclosing)ofsuchTargetPartybecomingsuchasubsidiaryorofsuchBusinessCombination,willpaytotheotherparty,ifLILCOistheTarget.Party,$75million,andifBrooklynUnionistheTargetParty,$45million,ineachcaseincashplus,ineithercase,theout-of-pocketfeesandexpensesincurredbytheotherparty(including,withoutlimitation,feesandexpensespayabletoalllegal,accounting,financial,publicrelationsandotherprofessionaladvisors)arisingoutof,inconnectionwithorrelatedtothetransactionscontemplatedbythisAgreement.(c)LIPAAGREEMENT.ForpurposesofSECTIONS9.3(a)and(b),theLIPAAgreementshallbedeemedaproposalforaBusinessCombinationinvolvingLILCOandLIPAshallbedeemedtheofferorwithrespectthereto,andanyfeeforthebenefitofBrooklynUnionwouldbepayableundersuchsectionsatthetimethis,Agreementisterminated;PROVIDED,thatifthisAgreementisterminatedfollowingafailureoftheA-39 shareholdersofLILCOto"granttheLILCOShareholders'pprovaldescribedinSection5.13,theLIPAAgreementshallnotbedeemedaproposalforaBusinessCombinationinvolvingLILCOandnofeeshallbepayabletoBrooklynUnionbyvirtueoftheLIPAAgreementunderSections9.3(b)(i)(y)and9.3(b)(ii).(d)EXPENSES.ThepartiesagreethattheagreementscontainedinthisSECTION9.3areanintegralpartofthetransactionscontemplatedbytheAgreementandconstituteliquidateddamagesandnotapenalty.Monepartyfails.topromptlypaytotheotheranyfeeduehereunder,thedefaultingpartyshallpaythecostsandexpenses(includinglegalfeesandexpenses)inconnectionwithanyaction,includingthefilingofanylawsuitorotherlegalaction,takentoco)lectpayment,togetherwithinterestontheamountofanyunpaidfeeatthepubliclyannouncedprimerateofCitibank,N.A.fromthedatesuchfeewasrequiredtobepaid.(e)LIMITATIONOFTERMINATIONFEES.Notwithstandinganythinghereintotheco'ntrary,theaggregateamountpayabletoBrooklynUnionanditsaffiliatespursuanttoSECTION9.3(a),SECTION9.3(b)andthetermsoftheLILCOStockOptionAgreementshallnotexceed$90millionandtheaggregateamountpayabletoLILCOanditsaffiliatespursuanttoSECTION9.3(a),SECTION9.3(b)andthetermsoftheBrooklynUnionStockOptionAgreementshallnotexceed$50million(includingreimbursementforfeesandexpensespayablepursuanttothisSECTION9.3).ForpurposesofthisSECTION9.3(c),theamountpayablepursuanttothetermsoftheLILCOStockOptionAgreementor'heBrooklynUnionStockOptionAgreement,hsthecasemaybe,shallbetheamountpaidpursuanttoSection7(a)(i)and7(a)(ii)thereof.SEcTIoN9.4'AMENDMENT.ThisAgreementmaybeamendedbytheBoardsofDirectorsofthepartieshereto,atanytimebeforeorafterapprovalhereofbytheshareholdersofBrooklynUnionandLILCOandpriortotheEffectiveTime,butaftersuchapprovals,nosuchamendmentshall(i)alterorchangetheamount'orkindofsharestobeissuedunderARTICLEIIor(ii)alterorchangeanyofthetermsandconditionsofthis'Agreementifanyofthealterationsorchanges,aloneorintheaggregate,wouldmateriallyadverselyaffecttherightsofholdersofBrooklynUnionCommonStockorLILCOCommonStock.ThisAgreementmaynotbeamendedexceptbyaninstrumentinwritingsignedonbehalfofeachofthepartieshereto.SEGTIQN9.5WAIVER.AtanytimepriortotheEffectiveTime,thepartiesheretomay(a)extendthetimefortheperformanceofanyoftheobligationsorotheractsoftheotherpartieshereto,(b}waiveanyinaccuraciesintherepresentationsandwarrantiescontainedhereinorinanydocumentdeliveredpursuantheretoand(c)waivecompliancewithanyoftheagreementsorconditionscontainedherein,totheextentpermittedbyapplicablelaw.Anyagreementonthepartofapartyheretotoanysuchextensionorwaivershallbevalidifsetforthinaninstrum'entinwritingsignedonbehalfofsuchparty.ARTICLEXGENERALPROVISIONSSEcTIoN10.1NON-SURVIVAL;EFFECTOFREPRESENTATIONSANDWARRANTIES.(a)Allrepresentations,warrantiesandagreementsinthis'AgreementshallnotsurvivetheEffectiveTime,exceptasotherwiseprovidedinthisAgreementandexceptfortheagreementscontainedinthisSECTION10.1andinARTICLE'II,SECTION7.5,SECTION7.9,SECTION7.10,SECTION7.11,SECTION7.14,SECTION7.15andSECTION10.7.(b)Nopartymayassert'aclaimforbreachofanyrepresentation,warrantyorcovenantcontainedinthisAgreement(whetherbydirectclaimor'counterclaim)exceptforthepurposeofassertingarighttoterminatethisAgreementpursuanttoSECTION9.1(g)(i)orSECTION9.1(h)(i)(orpursuanttoanyothersubsectionofSECTION9.1,iftheterminatingpartywouldhavebeenentitledtoterminatethisAgreementpursuanttoSECTION9.1(g)(i)orSECTION9.1(h)(i))orpursuanttoSECTION9.3.SEGTIQN10.2BROKERS.BrooklynUnionrepresentsandwarrantsthat,exceptforMerrillLynchwhosefeeshavebeendisclosedtoLILCOpriortothedatehereof,nobroker,finderorinvestmentbankerisentitledtoA-40 anybrokerage,finder'sorotherfeeorcommissioninconnectionwiththetransactionscontemplatedbythisAgreementbaseduponarrangementsmadebyoronbehalfofBrooklynUnion.LILCOrepresentsandwarrantsthat,exceptforDillonReadwhosefeeshavebeendisclosedtoBrooklynUnioppriortothedatehereof,nobroker,finderorinvestmentbankerisentitledtoanybrokerage,finder'sorotherfeeorcommissioninconnectionwiththe'transactionscontemplatedbythisAgreementbaseduponarrangementsmadebyoronbehalfofLILCO.SEcTIQN10.3NOTICES.Allnoticesandothercommunicationshereundershallbeinwritingandshallbedeemedgivenif(i)deliveredpersonally,(ii)sentbyreputableovernightcourierservice,(iii)telecopied(whichisconfirmed),or(iv)fivedaysafterbeingmailedbyregisteredorcertifiedmail(returnreceiptrequested)tothepartiesatthefollowingaddresses(oratsuchotheraddressforapartyasshallbespecifiedbylikenotice):(a)IftoBrooklynUnion,to:TheBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn,NewYork11201-3850Attention:ChiefExecutiveOfficerwithacopyto:Wachtell,Lipton,Rosen&Katz51West52ndStreetNewYork,NewYork10019Attention:RichardD.KatcherandSethA.Kaplan(b)IftoLILCO,to:~LongIslandLightingCompany175EastOldCountyRoadHicksville,NewYork11801Attention:ChiefExecutiveOfficerwithacopyto:Kramer,Levin,Naftalis&Frankel919ThirdAvenueNewYork,NewYork10022Attention:ThomasE.ConstanceSEGTIQN10.4MISCELLANEOUS.ThisAgreementincludingthedocumentsandinstrumentsreferredtoherein(i)constitutestheentireagreementandsupersedesallotherprioragreements'andunderstandings,bothwrittenandoral,amongtheparties,oranyofthem,withrespecttothesubjectmatterhereofotherthantheConfidentialityAgreement;(ii)shallnotbeassignedbyoperationoflaworothenvise;and(iii)shallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkapplicabletocontractsexecutedinandtobefullyperformedinsuchState,withoutgivingeffecttoitsconflictsoflawrulesorprinciples.SEGTIQN10.5INTERPRETATION.WhenareferenceismadeinthisAgreementtoSectionsorExhibits,suchreferenceshallbetoaSectionorExhibitofthisAgreement,respectively,unlessotherwiseindicated.ThetableofcontentsandheadingscontainedinthisAgreementareforreferencepurposesonlyandshallnotaffectinanywaythemeaningorinterpretationofthisAgreement.Wheneverthewords"include","includes"or"including"areusedinthisAgreement,theyshallbedeemedtobefollowedbythewords"withoutlimitation".tSEGTIQN10.6COUNTERPARTS;EFFECT.ThisAgreementmaybeexecutedinoneormorecounterparts,eachofwhichshallbedeemedtobeanoriginal,butallofwhichshallconstituteoneandthesameagreement.
SecrtoN10.7PARTIESININTEREST;ASSIGNMENT.ThisAgreementshallbebindinguponandinuresolelytothebenefitofeachpartyheretoandshallnotbeassignedbyoperationoflaworotherwise;provided,however,thatupon,theconsummationoftheKeySpanRestructuring,BrooklynUnionshallassigntoKeySpan,andKeySpanshallbesubstitutedforandshallassume,allofBrooklynUnion'srightsandobligationshereundereffectiveupontheeffectivetimeoftheKeySpanRestructuring,andthepartiesheretoshallexecuteanyamendmenttothisAgreementnecessarytoprovidethebenefitsofthisAgreementtoKeySpan.ExceptforrightsofIndemnifiedPartiesassetforthinSECTION7.5,nothinginthisAgreement,expressorimplied,isintendedtoconferuponanyotherpersonanyrightsorremediesof.anynaturewhatsoeverunderorbyreasonofthisAgreement.NotwithstandingtheforegoingandanyotherprovisionofthisAgreement,andinadditiontoanyotherrequiredactionoftheBoardofDirectorsoftheCompany(a)amajorityofthedirectorsofLILCO(ortheirsuccessors)servingontheBoardofDirectorsoftheCompanywhoaredesignatedbyLILCOpursuanttoSECTION7.13shallbeentitledduringthethreeyearperiodcommencingattheEffectiveTime(the"THREEYEARPERIOD")toenforcetheprovisionsofSECTION7.9,SECTION7.10,SECTION7.11andSECTION7.14onbehalfoftheLILCOofficers,directorsandemployees,asthecaselnaybe,and(b)amajorityofdirectorsofBrooklynUnion(ortheirsuccessors)servingontheBoardofDirectorsoftheCompanywhoaredesignatedbyBrooklynUnionpursuanttoSECTION7.13shallbeentitledduringtheThreeYearPeriodtoenforcetheprovisionsofSECTIONS7.9,SECTION7.10,SECTION7.11,andSECTION7.14on'behalfoftheBrooklynUnionofficers,directorsandemployees,asthecasemaybe.Suchdirectors'ightsandremediesundertheprecedingsentencearecumulativeandareinadditiontoanyotherrightsandremediestheymayhaveatlaworinequity,butinnoeventshallthisSECTION10.7bedeemedtoimposeanyadditionaldutiesonanysuchdirectors.TheCompanyshallpay,atthetimetheyareincurred,allcosts,feesandexpensesofsuchdirectorsincurredinconnectionwiththeassertionofanyrightsonbehalfofthepersonssetforthabovepursuanttothisSECTION10.7.SrcrioN10.8WAIVEROFJURYTRIALANDCERTAINDAMAGES.EachpartytothisAgreementwaives,tothefullestextentpermittedbyapplicablelaw,(i)anyrightitmayhavetoatrialbyjuryinrespectofanyaction,suitorproceedingarisingoutoforrelatingtothisAgreementand(ii)withoutlimitationtoSECTION9.3,anyrightitmayhavetoreceivedamagesfromanyotherpartybasedonanytheoryofliabilityforanyspecial,indirect,consequential(includinglostprofits)orpunitivedamages.SEcTIQN10.9ENFORCEMENT.ThepartiesagreethatirreparabledamagewouldoccurintheeventthatanyoftheprovisionsofthisAgreementwerenotperformedinaccordancewith,theirspecifictermsorwereotherwisebreached.ItisaccordinglyagreedtliatthepartiesshallbeentitledtoaninjunctionorinjunctionstopreventbreachesofthisAgreementandtoenforcespecificallythetermsandprovisio'nsofthisAgreementinanycourtoftheUnitedStateslocatedintheStateofNewYorkorinNewYorkstatecourt,thisbeinginadditiontoanyotherremedytowhichtheyareentitledatlaworinequity.A-42 eIINWITNESSWHEREOF,BrooklynUnionandLILCOhavecausedthisAgreementtobesignedbytheirrespectiveofficersthereuntodulyauthorizedasofthedatefirstwrittenabove.THEBROOKLYNUNIONGASCOMPANYBy/s/RQBERTB.CATELLRobertB.CatellChiefExecutiveOfficerLONGISLANDLIGHTINGCOMPANYBy's/WILLIAMJ.CATAcosINosDr.WilliamJ.CatacosinosChiefExecutiveOfficerA-43
[THISPAGEINTENTIONALLYLEFI'LANK]
ANNEXBAMENDEDANDRESTATEDLILCOSTOCKOPTIONAGREEMENTAMENDEDANDRESTATED'STOCKOPTIONAGREEMENT,datedasofJune26,1997,byandbetweenTHEBROOKLYNUNIONGASCOMPANY,aNewYorkcorporation("BrooklynUnion'"),andLONGISLANDLIGHTINGCOMPANY,aNewYorkcorporation(the"COMPANY").WHEREAS,concurrentlywiththeexecutionanddeliveryofthisAgreement,'(i)BrooklynUnionandtheCompanyareenteringintoanAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofthedatehereof(asthesamemaybeamendedfromtimetotime,the"EXCHANGEAGREEMENT"),whichprovides,amongotherthings,uponthetermsandsubjecttotheconditionsthereof,fortheexchangeofoutstandingsharesofcapitalstockofeachofBrooklynUnionandtheCompanyfornewlyissuedsharesofcapitalstockofaNewYorkcorporationtobeformed(the"BINDINGSHAREEXCHANGES"),and(ii)theCompanyandBrooklynUnionareenteringintoacertainamendedandrestatedstockoptionagreementdatedasofthedatehereofwherebyBrooklynUniongrantstotheCompanyanoptionwithrespecttocertainsharesofBrooklynUnion'scommonstockonthetermsandsubjecttotheconditionssetforththerein(the"BROOKLYNUNIONSTOCKOPTIONAGREEMENT");WHEREAS,asaconditiontoBrooklynUnion'swillingnesstoenterintotheoriginalAgreementandPlanofExchangebyandamongBrooklynUnion,LILCOandNYECOCorp.,datedasofDecember29,1996,BrooklynUnionhasrequestedthattheCompanyagree,andtheCompanyhassoagreed,togranttoBrooklynUnionanoptionwithrespecttocertainsharesoftheCompany'scommonstock,onthetermsandsubjecttotheconditionssetforthherein;tWHEREAS,thepartiesdesiretoamendandrestatetheoriginalLILCOStockOptionAgreementasofthe'atehereoftoreflecttheExchangeAgreement.NOW,THEREFORE,toinduceBrooklynUniontoenterintotheExchangeAgreement,andinconsiderationofthemutualcovenantsandagreementssetforthhereinandintheExchangeAgreement,thepartiesheretoagreeasfollows:41.GRANTOFOPTION.'heCompanyherebygrantsBrooklynUnionanirrevocableoption(the"COMPANYOPTION")topurchaseupto23,981,964shares,subjecttoadjustmentasprovidedinSection10(suchsharesbeingreferredtohereinasthe"COMPANYSHARES")ofcommon'stock,parvalue$5.00pershare,oftheCompany(the"COMPANYCOMMONSTOCK")(being19.9%ofthenumberofsharesofCompanyCommonStockoutstandingonthedatehereof)inthemannersetforthbelowataprice(the"EXERCISEPRICE")perCompanyShareof$19.725(whichisequaltotheFairMarketValue(asdefinedbelow)ofaCompanyShareonthedatehereof)payable,atBrooklynUnion'soption,(a)incashor(b)subjecttotheCompany'shavingobtainedtheapprovalsofanyGovernmentalAuthorityrequiredfortheCompanytoacquiretheBrooklynUnionShares(asdefinedbelow)fromBrooklynUnion,whichapprovalstheCompanyshallusebesteffortstoobtain,insharesofcommonstock,parvalue$.33Npershare,ofBrooklynUnion("BROOKLYNUNIONSHARES")ineithercaseinaccordancewithSection4hereof.Notwithstandingtheforegoing,innoeventshallthenumberofCompanySharesforwhichtheCompanyOptionisexercisableexceed19.9%ofthenumberofissuedandoutstandingsharesofCompanyCommonStock.Asusedherein,the"FAIRMARKETVALUE"ofanyshareshallbetheaverageofthedailyclosingsalespriceforsuchshareontheNewYorkStockExchange(the"NYSE")duringthe10NYSEtradingdayspriortothefifthNYSEtradingdayprecedingthedatesuchFairMarketValueistobedetermined.Capitalizedtermsusedhereinbut.notdefinedhereinshallhavethemeaningssetforthintheExchangeAgreement.l2.EXERCISEOFOPTION.TheCompanyOptionmaybeexercisedbyBrooklyn'Union,inwholeorinpart,atanytimeorfromtimetotimeaftertheExchangeAgreementbecomesterminablebyBrooklynUnionundercircumstanceswhichcouldentitleBrooklynUniontoterminationfeesundereitherSectionB;1 9.3(a)'oftheExchangeAgreement(providedthattheeventsspecifiedinSection9.3(a)(ii)(x)oftheExchangeAgreementshallhaveoccurred,althoughtheeventsspecifiedinSection9.3(a)(ii)(y)thereofneednothaveoccurred)orSection9.3(b)oftheExchangeAgreement(regardlessofwhethertheExchangeAgreementisactuallyterminatedorwhetherthereoccursaclosingofanyBusinessCombinationinvolvingaTargetPartyoraclosingby,whichaTargetPartybecomesasubsidiary),anysucheven(bywhichtheExchangeAgreementbecomessoterminablebyBrooklynUnionbeingreferredtohereinasa"TRIGGEREVENT."TheCompanyshallnotifyBrooklynUnionpromptlyinwritingoftheoccurrenceofanyTriggerEvent,itbeingunderstoodthatthegivingofsuchnoticebytheCompanyshallnotbeaconditiontotherightofBrooklynUniontoexercisetheCompanyOption.IntheeventBrooklynUnionwishestoexercisetheCompanyOption,BrooklynUnionshalldelivertotheCompanyawrittennotice(an"EXERCISENOTICEi')specifyingthetotalnumberofCompanySharesitwishestopurchase.EachclosingofapurchaseofCompanyShares(a"CLOSING")shalloccurataplace,onadateandat.atimedesignatedbyBrooklynUnioninanExerciseNoticedeliveredatleasttwobusinessdayspriortothedateoftheClosing.TheCompanyOptionshallterminateupontheearlierof:(i)theEffectiveTime;(ii)theterminationoftheExchangeAgreementpursuanttoSection9.1thereof(otherthanuponorduringthecontinuanceofaTriggerEvent);or(iii)180daysfollowinganyterminationoftheExchangeAgreementuponorduringthecontinuanceofaTriggerEvent(orif,atthe,expirationofsuch180dayperiodtheCompanyOptioncannotbeexercisedbyreasonofanyapplicablejudgment,decree,order,laworregulation,10businessdaysaftersuchimpedimenttoexerciseshallhavebeenremovedorshallhavebecomefinalandnotsubjecttoappeal,butinnoeventunderthisclause(iii)laterthanApril28,1999).Notwithstandingtheforegoing,theCompanyOptionmaynotbeexercisedifBrooklynUnionisin,materialbreachofanyofits'materialrepresentationsorwarranties,orinmaterialbreachofanyofitscovenantsoragreements,containedinthisAgreementorintheExchangeAgreement.UponthegivingbyBrooklynUniontotheCompanyoftheExerciseNoticeandthetenderoftheapplicableaggregateExercisePrice,BrooklynUnionshallbedeemedtobetheholderofrecordoftheCompanySharesissuableuponsuchexercise,notwithstandingthatthestocktransferbooksoftheCompanyshallthenbeclosedorthatcertificatesrepresentingsuchCompanySharesshallnotthenbeactuallydeliveredtoBrooklynUnion.3.CONDITIONSTOCLOSING.TheobligationoftheCompanytoissuetheCompanySharestoBrooklynUnionhereunderissubjecttotheconditions,which(otherthantheconditionsdescribedinclauses(i),(iii)and(iv)below)maybewaivedbytheCompanyinitssolediscretion,that(i)allwaitingperiods,ifany,undertheHSRAct,applicabletotheissuanceoftheCompanyShareshereundershallhaveexpiredorhavebeenterminated;(ii)theCompanyShares,andanyBrooklynUnionShareswhichareissuedinpaymentoftheExercisePrice,shallhlivebeenapprovedforlistingontheNYSEuponofficialnoticeofissuance;(iii)allconsents,approvals,ordersorauthorizationsof,orregistrations,declarations'orfilingswith,anyfederal,stateorlocaladministrativeagencyorcommissionorotherfederal,stateorlocalGovernmentalAuthority,ifany,requiredinconnectionwiththeissuanceoftheCompanyShareshereundershallhavebeenobtainedormade,asthecasemaybe,including,withoutlimitation,ifapplicable,theapprovaloftheSECunderSection10ofthe1935ActoftheacquisitionoftheCompanySharesbyBrooklynUnionand,ifapplicable,theacquisitionbytheCompanyoftheBrooklynUnionSharesconstitutingtheExercisePricehereunder;and(iv)nopreliminaryorpermanentinjunctionorotherorderbyanycourtofcompetentjurisdictionprohibitingorotherwiserestrainingsuchissuanceshallbeineffect.K4.CLOSING.AtanyClosing,(a)theCompanywilldelivertoBrooklynUnionoritsdesigneeasinglecertificateindefinitiveformrepresentingthenumberoftheCompanySharesdesignatedbyBrooklynUnioninitsExerciseNotice,suchcertificatetoberegisteredinthenameofBrooklynUnionandtobearthelegendsetforthinSection11,and(b)BrooklynUnionwilldelivertotheCompanytheaggregatepricefortheCompanySharessodesignatedandbeingpurcha'sedby(i)wiretransferofimmediatelyavailablefundsorcertifiedcheckorbankcheckor(ii)subjecttotheconditioninSection1(b),acertificateorcertificatesrepresentingthenumberofBrooklynUnionSharesbeingissuedbyBrooklynUnioninconsiderationthereof,asthecasemaybe.Forthepurposesofthis'Agreement,thenumberofBrooklynUnion'Sharestobedelivered'totheCompanyshallbeequaltothequotientobtainedbydividing(i)theproduct'of(x)thenumberofCompanyShareswithrespect,towhichtheCompanyOptionisbeingexercisedB-2 and(y)theExercisePriceby(ii),theFairMarketValueoftheBrooklynUnionSharesonthedateimmediatelyprecedingthedatetheExerciseNoticeisdeliveredtotheCompany.TheCompany,shallpayallexpenses,andanyandallUnitedStatesfederal,stateandlocaltaxesandotherchargesthatmaybepayableinconnectionwiththepreparation,issueanddeliveryofstock,certificates'under'thisSection4inthenameofBrooklynUnionoritsdesignee.5.REPRESENTATIONSANDWARRANTIESOFTHECOMPANY.TheCompanyrepresentsandwarrantstoBrooklynUnionthat(a)exceptassetforthinSection5.1oftheLILCODisclosureSchedule,theCompanyisacorporationdulyorganized,validlyexistingandinactivestatusunderthelawsoftheStateofNewYorkandhas"thecorporatepower.andauthoritytoenterintothisAgreement,and,subjecttoobtainingtheapplicableapprovalofshareholdersoftheCompanyfortherepurchaseofCompanySharespursuanttoSection7(a)belowundercircumstanceswhereSection513(e)oftheNYBCLwouldbeapplicable(the"BUYBACKAPPROVALS")andsubjecttoanyregulatoryapprovalsreferredtohereinandtotheprovisionsofSection513(a)oftheNYBCL,ifapplicable,tocarryoutitsobligationshereunder,(b)theexecutionanddeliveryofthisAgreementbytheCompanyandtheconsummationbytheCompanyofthetransactionscontemplatedherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartoftheCompanyandnoothercorporateproceedingsonthepartoftheCompanyarenecessarytoauthorizethisAgreementoranyofthetransactionscontemplatedhereby(otherthananyrequiredBuybackApprovals),(c)suchcorporateaction(includingtheapprovaloftheBoardofDirectorsoftheCompany)isintendedtorenderinapplicabletothisAgreementandtheExchangeAgreementandthetransactionscontemplatedherebyandthereby,theprovisionsoftheNYBCLreferredtoinSection5,15oftheExchangeAgreement,(d)thisAgreementhasbeendulyexecutedanddeliveredbytheCompany,constitutesavalidandbindingobligationof,theCompanyand,assumingthisAgreementconstitutesavalidandbindingobligationofBrooklynUnion,isenforceableagainsttheCompanyinaccordancewithitsterms,(e)theCompanyhastakenallnecessarycorporateactiontoauthorizeandreserveforissuanceandtopermitittoissue,uponexerciseoftheCompanyOption,andatalltimesfromthedatehereofthroughtheexpirationoftheCompanyOptionwillhavereserved,23,981,964authorizedandunissuedCompanyShares,suchamountbeingsubjecttoadjustmentasprovidedinSection10,allofwhich,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fullypaidandnonassessable,(f)upondeliveryoftheCompanySharestoBrooklynUnionupontheexerciseoftheCompanyOption,BrooklynUnionwillacquiretheCompanySharesfreeandclea'rofallclaims,liens,charges,encumbrancesandsecurityinterestsofanynaturewhatsoever,(g)exceptasdescribedinSection5.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbytheCompanydoesnot,andtheconsummationbytheCompanyofthetransactionscontemplatedherebywillnot,violate,conflictwith,orresultinabreachofanyprovisionof,orconstituteadefault(withorwithoutnoticeorlapseoftime,orboth)under,orresultintheterminationof,oracceleratetheperformancerequiredby,orresultinarightoftermination,cancellation,oraccelerationofanyobligationorthelossofamaterialbenefitunder,orthecreationofalien,pledge,securityinterestorotherencumbranceonassets(anysuchconflict,violation,default,rightoftermination,cancellationoracceleration,lossorcreation,a"VIOLATION")oftheCompanyoranyofitssubsidiaries,pursuantto,(A)anyprovisionofthecertificateofincorporationorby-lawsoftheCompany,(B)anyprovisionsofanyloanorcreditagreement,note,mortgage,indenture,lease,Companybenefitplanorotheragreement,obligation,instrument,permit,concession,franchise,licenseor(C)anyjudgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletotheCompanyoritspropertiesorassets,whichViolation,inthecaseofeachofclauses(B)and(C),couldreasonablybeexpectedtohaveamaterialadve'rseeffect'on'theCompanyanditssubsidiariestakenasawhole,(h)exceptasdescribedinSection5.4(c)oftheExchangeAgreementorSection1(b)orSection3hereof,theexecutionanddeliveryofthisAgreementbytheCompanydoesnot,andtheperformanceofthisAgreementbytheCompanywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthority,(i)noneoftheCompany,anyofitsaffiliatesoranyoneactingonitsortheirbehalfhasissued,soldorofferedanysecurityoftheCompanytoanypersonundercircumstancesthatwouldcausetheissuanceandsaleoftheCompanyShares,ascontemplatedbythisAgreement,tobesubjecttotheregistrationrequirementsoftheSecuritiesActasineffectonthedatehereofand,assumingtherepresentationsofBrooklynUnioncontainedinSection6(h)aretrueandcorrect,theissuance,saleand8-3 "deliveryoftheCompanyShareshereunderwouldbeexemptfromtheregistrationandprospectusdeliveryrequirementsoftheSecuritiesAct,asineffectonthedatehereof(andtheCompanyshallnottakeanyactionwhichwouldcausetheissuance,saleanddeliveryoftheCompanyShareshereundernottobeexemp'tfromsuchrequirements),and(j)anyBrooklynUnionSharesacquiredpursuanttothisAgreementwillbeacquiredfortheCompany'sownaccount,forinvestmentpurposesonlyandwillnotbeacquiredbytheCompanywithaviewtothepublicdistributionthereofinviolationofanyapplicableprovisionoftheSecuritiesAct.6.REPRESENTATIONSANDWARRANTIESOFBrooklynUnion.BrooklynUnionrepresentsandwarrantstotheCompanythat(a)BrooklynUnionisacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsoftheStateofNewYorkandhasthecorporatepowerandauthoritytoenterintothisAgreementandtocarryoutitsobligationshereunder,(b)theexecutionanddeliveryofthisAgreementbyBrooklynUnionandtheconsummationbyBrooklynUnionofthetransactionscontemplatedherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofBrooklynUnionandnoothercorporateproceedingsonthepartofBrooklynUnionarenecessarytoauthorizethisAgreementor'nyofthetransactionscontemplatedhereby,(c)thisAgreementhasbeendulyexecutedanddeliveredbyBrooklynUnionandconstitutesavalidandbindingobligationofBrooklynUnion,and,assumingthisAgreementconstitutesavalidandbindingobligationoftheCompany,isenforceableagainstBrooklynUnioninaccordancewithitsterms,(d)priortoanydeliveryofBrooklynUnionSharesinconsiderationof'hepurchaseofCompanySharespursuanthereto,BrooklynUnionwillhavetakenallnecessarycorporateactiontoauthor'izeforissuanceandtopermitittoissuesuchBrooklynUnionShares,allofwhich,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fullypaidandnonassessable,andtorenderinapplicabletothereceiptbytheCompanyoftheBrooklynUnionSharestheprovisionsoftheNYBCLreferredtoinSection4.15oftheExchangeAgreement,(e)uponanydeliveryofsuchBrooklynUnionSharestotheCompanyinconsiderationofthepurchaseofCompanySharespursuanthereto,theCompanywillacquiretheBrooklynUnionSharesfreeandclearofallclaims,liens,charges,encumbrancesandsecurityinterestsofanynaturewhatsoever,(f)exceptasdescribedinSection4.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbyBrooklynUniondoesnot,andtheconsummationbyBrooklynUnionofthetransactionscontemplatedherebywillnot,violate,conflictwith,orresultinthebreachofanyprovisionof,orconstituteadefault(withorwithoutnoticeorlapseoftime,orboth)under,orresultinanyViolationbyBrooklynUnionoranyofitssubsidiaries,pursuantto(A)anyprovisionofthecertificateofincorporationorby-lawsofBrooklynUnion,(B)anyprovisionsofanyloanorcreditagreement,note,mortgage,indenture,lease,BrooklynUnionbenefitplanorotheragreement,obligation,instrument,permit,concession,franchise,licenseor(C)anyjudgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletoBrooklynUnionoritspropertiesorassets,whichViolation,inthecaseofeachofitsclauses(B)and/or(C),wouldhaveamaterialadverseeffectonBrooklynUnionanditssubsidiariestakenasawhole,(g)exceptasdescribedinSection4.4(c)oftheExchangeAgreementorSection1(b)orSection3hereof,the,executionanddeliveryofthisAgreementbyBrooklynUniondoesnot,andtheconsummationbyBrooklynUnionofthetransactionscontemplatedherebywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,'nyGovernmentalAuthorityand(h)anyCompanySharesacquireduponexerciseoftheCompanyOptionwillbeacquiredforBrooklynUnion'sownaccount,for,investmentpurposesonlyandwillnotbe,andtheCompanyOptionisnotbeing,acquiredbyBrooklynUnionwithaviewtothepublicdistributionthereofinviolatiotlofanyapplicableprovisionoftheSecuritiesAct.7.CERTAINREPURCHASES.(a)BROOKLYNUNIONPUT.AttherequestofBrooklynUnionbywrittennoticeatanytimeduringwliichtheCompanyOptionisexercisablepursuanttoSection2(the"REPURCHASEPERIOD"),theCompany(oranysuccessorentitythereof)shallrepurchasefromB'rooklynUnionallor'nyportionoftheCompanyOption,atthepricesetforthinsubparagraph(i)below,or,attherequestofBrooklynUnionbywrittennoticeatanytimepriortoAugust31,1998(providedthatsuchdateshallbeextendedtoApril28,1999underthecircumstanceswherethedateafterwhicheitherpartymayterminatetheExchangeAgreementpursuanttoSection9.1(b)oftheExchangeAgreement hasbeenextendedtoApril28,1999),theCompany(oranysuccessorentitythereof)shallrepurchasefromBrooklynUnionalloranyportionoftheCompanySharespurchasedbyBrooklynUnionpursuanttotheCompanyOption,atthepriceset,forthinsubparagraph(ii)below;(i)thedifferencebetweenthe"MARKET/OFFERPRICE"forsharesofCompanyCommonStockasofthedateBrooklynUniongivesnoticeofitsintenttoexerciseitsrightsunderthisSection7(definedasthehighero'f(A)thepricepershareofferedasofsu'chdatepursuanttoanytenderorexchangeofferorotherofferwithrespecttoaBusinessCombinationwhichwasmadepriortosuchdateandnotterminatedorwithdrawnasofsuchdate(the"OFFERPRICE")and(B)theFairMarketValueofCompanyCommonStockasofsuchdate(the"MARKETPRICE"))andtheExercisePrice,multipliedbythenumberofCompanySharespurchasablepursuanttotheCompanyOption(orportionthereofwithrespecttowhichBrooklynUnionisexercisingitsrightsunderthisSection7),butonlyiftheMarket/OfferPriceisgreaterthantheExercisePrice;(ii)theproductof(x)thesumof(A)theExercisePricepaidbyBrooklynUnionperCompanyShareacquiredpursuanttotheCompanyOptionand(B)thedifferencebetweentheMarket/OfferPriceandtheExercisePrice,butonlyiftheMarket/OfferPriceisgreaterthantheExercisePrice,and(y)thenumberofCompanySharestoberepurchasedpursuanttothisSection7.Forpurposesofthisclause(ii),theOfferPriceshallbethehighestpricepershareofferedpursuanttoatenderorexchangeofferorotherBusinessCombinationofferduringtheRepurchasePeriodpriortothedeliverybyBrooklynUnionofanoticeofrepurchase.(b)REDELIVERYOFBROOKLYNUNIONSHARES.IfBrooklynUnionelectedtopurchaseCompanySharespursuanttotheexerciseoftheCompanyOptionbytheissuanceanddeliveryofBrooklynUnionShares,thentheCompanyshall,ifsorequestedbyBrooklynUnion,infulfillmentofitsobligationpursuanttoclause(a)ofSection7(a)(ii)(x)(thatis,withrespecttotheExercisePriceonlyandwithoutlimitationtoitsobligationtopayadditionalconsiderationunderclause(b)ofSection7(a)(ii)(x)),redeliverthecertificateforsuchBrooklynUnionSharestoBrooklynUnion,freeandclearofallliens,claims,damages,chargesandencumbrancesofanykindornaturewhatsoever;provided,however,thatiflessthanalloftheCompanySharespurchasedbyBrooklynUnionpursuanttotheCompanyOptionaretoberepurchasedpursuanttothisSection7,thenBrooklynUnionshallissuetotheCompanya,newcertificaterepresentingthoseBrooklynUnionShareswhicharenotduetobercdeliveredtoBrooklynUnionpursuanttothisSection7astheyconstitutedpaymentoftheExercisePricefortheCompanySharesnotbeingrepurchased.(c)PAYMENTANDREDELIVERYOFCOMPANYOPTIONORSHARES.IntheeventBrooklynUnionexercisesitsrightsunderthisSection7,theCompanyshall,within10businessdaysthereafter,paytherequiredamounttoBrooklynUnioninimmediatelyavailablefundsandBrooklynUnionshallsurrendertotheCompanytheCompanyOptionorthecertificatesevidencingtheCompanySharespurchasedbyBrooklynUnionpursuantthereto,andBrooklynUnionshallwarrantthatitownstheCompanyOptionorsuchsharesandthattheCompanyOptionorsuchsharesarethenfreeandclearofallliens,claims,damages,chargesandencumbrancesofanykindornaturewhatsoever.(d)'BROOKLYNUNIONCALL.IfBrooklynUnidnhaselectedtopurchaseCompanySharespursuanttotheexerci'seoftheCompanyOptionbytheissuanceanddeliveryofBrooklynUnionShares,notwithstandingthatBrooklynUnionmaynolongerholdanysuchCompanySharesorthat'rooklynUnionelectsnottoexerciseitsotherrightsunderthisSection7,BrooklynUnionmayrequire,atanytimeorfromtimefotimepriortoAugust31,1998(providedthatsuchdateshallbeextendedtoApril28,1999underthecircumstanceswherethedateafterwhicheitherpartymayterminatetheExchangeAgreementpursuanttoSection9.1(b)oftheExchangeAgreementhasbeenextendedtoApril28,1999),theCompanytoselltoBrooklynUnionanysuchBrooklynUnionSharesattheFairMarketValuethathadbeenattributedtosuchBrooklynUnionSharespursuanttoSection4plusinterestattherateof6.5%perannumonsuchamountfromtheClosingDaterelatingtotheB-5 exchangeof-suchBrooklynUnionSharespursuanttoSection4totheclosingdateunderthisSection7(d)lessanydividendsonsuchBrooklynUnionSharespaidduringsuchperiodordeclaredandpayabletostockholdersofrecordonadateduringsuchperiod.'e)REPURCHASEPRICEREDUCEDATBROOKLYNUNION'SOPTION.IntheeventtherepurchasepricespecifiedinSection7(a)wouldsubjectthepurchaseoftheCompanyOptionortheCompanySharespurchasedbyBrooklynUnionpursuanttotheCompanyOptiontoavoteofthe,shareholdersoftheCompanypursuanttoSection513(e)oftheNYBCL,thenBrooklynUnionmay,atitselection,reducetherepurchasepricetoanamountwhichwouldpermitsuchrepurchasewithoutthenecessityforsuchashareholdervote.,8.RESTRICTIONSONTRANSFER.(a)RESTRICTIONSONTRANSFER.PriortotheExpirationDate,neitherpartyshall,directlyorindirectly,byoperationoflaworotherwise,sell,assign,pledge,orotherwisedisposeofortransferanysharesofcapitalstockoftheotherpartyacquiredbysuchpartypursuanttothisAgreement("RestrictedShares")andbeneficiallyownedbysuchparty,otherthan(i)pursuanttoSection7,or(ii)inaccordancewithSection8(b)orSection9.(b)PERMITI'EDSALES.FollowingtheterminationoftheExchangeAgreement,apartyshallbepermittedtosellanyRestrictedSharesbeneficiallyownedbyitifsuchsaleismadepursuanttoatenderorexchangeofferthathasbeenapprovedorrecommended,orotherwisedeterminedtobefairtoandinthebestinterestsoftheshareholdersoftheotherparty,byamajorityofthemembersoftheBoardofDirectorsofsuchotherpartywhichmajorityshallincludeamajorityofdirectorswhoweredirectorspriortothe'announcementofsuchtenderorexchangeoffer.9.REGISTRATIONRIGHTS.FollowingtheterminationoftheExchangeAgreement,eachpartyhereto(a"DESIGNATEDHOLDER")maybywrittennotice(the"REGISTRATIONNOTICE")totheotherparty(the"REGISTRANT")requesttheRegistranttoregisterunderthe"SecuritiesActalloranypartof'theRestrictedSharesbeneficiallyownedbysuchDesignatedHolder(the"REGISTRABLESECURITIES")pursuanttoabonafidefirmcommitmentunderwrittenpublicofferinginwhichtheDesignatedHolderandtheunderwritersshalleffectaswideadistributionofsuchRegistrableSecuritiesasisreasonablypracticableandshallusetheirbesteffortstopreventanyperson(includinganyGroup(asusedinRule13d-5undertheExchangeAct))anditsaffiliatesformpurchasingthroughsuchofferingRestrictedSharesrepresentingmorethan1%oftheoutstandingsharesofcommonstockoftheRegistrantonafullydilutedbasis(a"PERMIT'EDOFFERING").TheRegistrationNoticeshallincludeacertificateexecutedbytheDesignatedHolder'anditsproposed,managingunderwriter,whichunderwritershallbeaninvestmentbankingfirmofnationallyrecognizedstanding(the"MANAGER"),statingthat(i)theyhaveagoodfaithintentiontocommencepromptlya,PermittedOfferingand(ii)IheManageringoodfaithbelievesthat,basedonthethenprevailingmarketconditions,itwillbeabletoselltheRegistrableSecuritiesatapersharepriceequaltoatleast80%ofthethenFairMarketValueofsuchshares.TheRegistrant(and/oranypersondesignatedbytheRegistrant)shallthereuponhavetheoptionexercisablebywrittennoticedeliveredtotheDesignatedHolderwithin10businessdaysafterthereceiptoftheRegistrationNotice,irrevocablytoagreetopurchasealloranypartoftheRegistrableSecuritiesproposedtobesosoldforcashataprice(the"OPTIONPRICE")equaltotheproductof(i)thenumberofRegistrableSecuritiestobesopurchasedbytheRegistrantand(ii)thethenFairMarketValueofsuchshares.AnysuchpurchaseofRegistrableSecuritiesbytheRegistrant(oritsdesignee)hereundershalltakeplaceataclosingtobeheldattheprincipalexecutiveofficesoftheRegistrantorattheofficesofitscounselatanyreasonabledateandtimedesignatedbytheRegistrantand/orsuchdesigneeinsuchnoticewithin20businessdaysafterdeliveryofsuchnotice.AnypaymentforthesharestobepurchasedshallbemadebydeliveryatthetimeofsuchclosingoftheOptionPriceinimmediatelyavailablefunds.IftheRegistrantdoesnotelecttoexerciseitsoptionpursuanttothisSection9withrespecttoallRegistrableSecurities,itshalluseitsbesteffortstoeffect,aspromptlyaspracticable,theregistrationundertheSecuritiesActoftheunpurchasedRegistrableSecuritiesproposedtobesosold;provided,however,that(i)neitherpartyshallbeentitledtomorethananaggregateoftwoeffectiveregistrationstatementshereunderand(ii)theRegistrantwillnotberequiredtofileanysuchregistrationstatementduringanyperiodoftimeB-6 (nottoexceed40daysaftersuchrequestinthecaseofclause(A)belowor90daysinthecaseofclauses(B)and(C)below)when(A)theRegistrantisinpossessionofmaterialnon-publicinformationwhichitreasonablybelieveswouldbedetrimentaltobedisclosedatsuchtimeand,intheopinionofcounseltotheRegistrant,suchinformationwouldhavetobedisclosedifaregistrationstatementwerefiledatthattime;(B)theRegistrantisrequiredundertheSecuritiesActtoincludeauditedfinancialstatementsforanyperiodinsuchregistrationstatementandsuchfinancialstatementsarenotyetavailableforjnclusioninsuchregistrationstatement;or(C)theRegistrantdetermines,initsreasonablejudgment,thatsuchregistrationwouldinterferewithanyfinancing,acquisitionorothermaterialtransactioninvolvingtheRegistrantoranyofitsaffiliates.TheRegistrantshalluseitsreasonablebesteffortstocauseanyRegistrableSecuritiesregisteredpursuanttothisSection9tobequalifiedforsaleunderthesecuritiesorBlue-SkylawsofsuchjurisdictionsastheDesignatedHoldermayreasonablyrequesta'ndshallcontinuesuchregistrationorqualificationineffectinsuchjurisdiction;provided,however,thattheRegistrantshallnotberequiredtoqualifytodobusinessin,orconsenttogeneralserviceofprocessin,anyjurisdictionbyreasonofthisprovision.TheregistrationrightssetforthinthisSection9aresubjecttotheconditionthattheDesignatedHoldershallprovidetheRegistrantwithsuchinformationwithrespecttosuch,holder'sRegistrable.Securities,theplansforthedistributionthereof,andsuchotherinformationwithrespecttosuchholderas,inthereasonablejudgmentofcounselfortheRegistrant,isnecessarytoenabletheRegistranttoincludeinsuchregistrationstatementallmaterialfactsrequiredtobedisclosedwithrespecttoaregistrationthereunder.AregistrationeffectedunderthisSection9shallbeeffectedattheRegistrant'sexpense,exceptforunderwritingdiscountsandcommissionsandthefeesandtheexpensesofcounseltotheDesignatedHolder,andtheRegistrantshallprovidetotheunderwriterssuch'documentation(includingcertificates,opinionsofcounseland"comfort"lettersfromauditorsasarecustomaryinconnectionwithunderwrittenpublicofferingsassuchunderwritersmayreasonablyrequire.Inconnectionwithanysuchregistration,thepartiesagree(i)toindemnifyeachotherandtheunderwritersinthecustomarymanner,(ii)toenterintoanunderwritingagreementinformandsubstancecustomaryfortransactionsofsuchtypewiththeManagerandtheotherunderwritersparticipatinginsuchofferingand(iii)totakeallfurtheractionswhichshallbereasonablynecessarytoeffectsuchregistrationandsale(including,iftheManagerdeemsitnecessary,participatinginroad-showpresentations).TheRegistrantshallbeentitledtoinclude(atitsexpense)additionalsharesofitscommonstockinaregistrationeffectedpursuanttothisSection9onlyifandtotheextenttheManagerdeterminesthatsuchinclusionwillnotadverselyaffecttheprospectsofsuccessofsuchoffering.10.ADJUSTMENTUPONCHANGESINCAPITALIZATION.WithoutlimitationtoanyrestrictionontheCompanycontainedinthisAgreementorintheExchangeAgreement,intheeventofanychangeinCompanyCommonStockbyreaso'nofstockdividends,splitups,mergers(otherthantheBindingShareExchanges),recapitaiizations,combinations,exchangeofsharesorthelike,thetypeandnumberofsharesorsecuritiessubjecttotheCompanyOption,andthepurchasepricepershareprovidedinSectionI,sliallbeadjustedappropriatelytorestoretoBrooklynUnionitsrightshereunder,includingtherighttopurchasefromtheCompany(oritssuccessors)sliaresofCompanyCommonStockrepresenting19.9%oftheOutstandingCompanyCommonStockfortheaggregateExercisePrice'calculatedasofthedateofthisAgreementasprovidedinSection1.11.RESTRICTIVELEGENDS.EachcertificaterepresentingsharesofCompanyCommonStockissuedtoBrooklynUnionhereunder,andBrooklynUnionShares,ifany,deliveredtotheCompanyataClosing,shallincludealegendinsubstantiallythefollowingform:THESECURITIESREPRESENTEDBYTHISCERTIFICATEHAVENOTBEENREGISTEREDUNDER.THESECURITIESACTOF1933,ASAMENDED,ANDMAYBEREOFFEREDORSOLDONLYIFSOREGISTEREDORIFANEXEMPTIONFROMSUCHREGISTRATIONISAVAILABLE.SUCHSECURITIES,AREALSOSUBJECTTOADDITIONALRESTRICTIONSONTRANSFERASSETFORTHINTHEAMENDEDANDRESTATEDSTOCK8-7 tOPTIONAGREEMENT,DATEDASOFJUNE26,1997,ACOPYOFWHICHMAYBEOBTAINEDFROMTHEISSUERUPONREQUEST.Itisundeistoodandagreedthat:(i)thereferencetotheresalerestrictionsofthe'SecuritiesActintheabovelegendshallberemovedbydeliveryofsubstitutecertificate(s)withoutsuchreferenceifBrooklynUnionortheCompany,a'sthecasemaybe,shallhavedeliveredtotheotherpartyacopyofaletterfromthestaffoftheSecuritiesandExchangeCommission,oranopinionofcounsel,inform"andsubstancesatisfactorytotheotherparty,"totheeffectthatsuchlegendisnotrequiredfoipurposesoftheSecuritiesAct;(ii)thereferericetotheprovisionstothisAgreementintheabovelegendshallberemovedbydelivery'fsubstitutece'rtificate(s)withoutsuchreferenceiftheshareshavebeensoldortransferredincompliancewiththeprovisionsofthisAgreeinentandundercircumstancesthatdonotiequiretheretentionofsuchreference;and(iii)thelegendshallbcremoved'initsentiretyiftheconditionsintheprecedingclauses(i)and(ii)arebothsatisfied.Inaddition,suchcertificatesshallbearanyotherlegendasmayberequiredbylaw.CertificatesrepresentingsharessoldinaregistcrcdpublicofferingpursuanttoSection9shallnotbcrequiredtobearthelegendsetforthinSection11.f2.BINDINGEFFECT;NOASSIGNMENT;NOTHIRDPAI?TYBENEFICIARIES.ThisAgreementshallbebindinguponandinuretothebenefitofthepartiesheretoandtheirrespectivesuccessorsandpermittedassigns.ExceptasexpresslyprovidedforinthisAgreement,neitherthisAgreementnortherightsortheobligationsofeitherpartyheretoareassignable,exceptbyoperationoflaw,orwiththewrittenconsentoftheotherparty.NothingcontainedinthisAgreement,expressorimp/ied,isintendedtoconferuponanypersonotherthanthepartiesheretoandtheirrespectivepermittedassignsanyrightsorremediesofanynaturewhatsoeverbyreasonofthisAgreement.AnyRestrictedSharessoldbyapartyincompliancewiththeprovisionsofSection9shall,uponconsummationofsuchsale,befreeoftherestrictionsimposedwithrespecttosuchsharesbythisAgreement,unless'anduntilsuchpartyshallrepurchaseorotherwisebecomethebeneficialownerofsuchshares,andanytransferee'ofpuchsharesshallnotbeentitledtotheregistrationrightsofsuchparty.13,SPECIFICPERFORMANCE.ThepartiesrecognizeandagreethatjfforanyreasonanyoftheprovisionsofthisAgreementarenotperformedinaccordancewiththeirspecifictermsorarcotherwisebreached,immediateandirreparableharmorinjurywouldbecausedforwhichmoneydamageswouldnotbeanadequateremedy,Accordingly,eachpartyagreesthat,inadditiontootherremedies,theotherpartyshallbeentitled,toaninjunctionrestraininganyviolationorthreatenedviolatioitoftheprovisionsofthisAgreement.IntheeventthatanyactionshouldbebroughtinequitytoenforcetheprovisionsoftheAgreement,neitherpartywillallege,andeachpartyherebywaivesthedefense,thatthereisadequateremedyatlaw.N14.ENTIREAGREEMENT.ThisAgreement,theBrooklynUnionStockOptionAgreement,theConfidentialityAgreementandtheExchangeAgreement(includingtheexhibitsandschedulesthereto)constitutetheentirea'greementamongthe'partieswithrespecttothesubjectmatterhereofandthereofandsupersedeaf1otherprioragreementsandunderstandings,bothwrittenandoral,amongthepartiesoranyofthemwithrespecttothesubjectmatterhereofandthereof.15.,FURTHERASSURANCES.Eachpartywillexecuteanddeliverallsuchfurtherdocumentsandinstrumentsandtakeallsuchfurtheractionasmaybenecessaryinordertoconsummatethetransactionscontemplatedhereby.16.VALIDITY.TheinvalidityorunenforceabilityofanyprovisionsofthisAgreementshallnotaffectthevalidityorenforceabilityoftheotherprovisionsofthisAgreement,whichshallremaininfullforceandeffect.IntheeventanycourtorothercompetentauthorityholdsanyprovisionsofthisAgrcemcnttobenull,voidorunenforceablc,thepartiesheretoshallnegotiateingoodfaiththeexecutionanddeliveryofanamendmenttothisAgreementinorder,asnearlyaspossible,toeffectuate,totheextentpermittedbylaw,theintentofthepartiesheretowithrespecttosuchprovisionand.theeconomiceffectsthereof.IfforanyreasonanysuchcourtorregulatoryagencydeterminesthatBrooklynUnionisnotpermittedtoacquire,ortheCompanyisnotpermittedtorepurchasepursuanttoSection7,thefullnumberofsharesofCompanyCommonStockprovidedinSectionIhereof(asthesamemaybeadjusted),itistheexpressintentionofB-8 0theCompanytoallow,BrooklynUniontoacquireortorequiretheCompanytorepurchasesuchlessernumberofsharesasmaybepermissible,withoutanyamendmentormodificationhereof.Eachpartyagreesthat,shouldanycourtorother,competentauthorityholdanyprovisionofthisAgreementor,parthereoftobenull,voidorunenforceable,ororderanypartytotakeanyactioninconsistentherewith,ornottakeanyactionrequiredherein,theotherpartyshallnotbeentitledtospecificperformanceofsuchprovisionorparthereofortoanyotherremedy,includingbutnotlimitedtomoneydamages,forbreach'hereoforofanyotherprovisionofthisAgreementorparthereofastheresultofsuchholdingororder.17.NOTICES.,Allnoticesandothercommunicationhereundershallbeinwritingandshallbedeemedgivenif(i)deliveredpersonally,or(ii)sentbyreputableovernightcourierservice,or(iii)telecopied(whichisconfirmed),or(iv)fivedaysafterbeingmailedbyregisteredorcertifiedmail(return'receiptrequested)tothepartiesatthefollowingaddresses(oratsuchotheraddressforapartyasshallbespecifiedbylikenotice):A.IftoBrooklynUnion,to:TheBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn,NewYork11201-3850Attention:ChiefExecutiveOfficerwithacopyto:Wachtell,Lipton,Rosen&Katz51West52ndStreetNewYork,NewYork10019Attention:SethA.KaplanB.IftotheCompany,to:LongIslandLightingCompany175EastOldCountyRoadHicksville,NewYork11801Attention:ChiefExecutiveOfficerwithacopyto:Kramer,Levin,Naftalis&Frankel919ThirdAvenueNewYork,NewYork10022Attention:ThomasE.Constance18.GOVERNINGLAW;CHOICEOFFORUM.ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkapplicabletoagreementsmadeandtobeperformedentirelywithinsuchStateandwithoutregardtoitschoiceoflawprinciples.Eac'hofthepartieshereto(a)consentstosubmititselftothepersonaljurisdictionofanyfederalcourtlocatedintheStateofNewYorkoranyNewYorkstatecourtintheeventanydisputearisesoutofthisAgreementoranyofthetransactionscontemplatedbythisagreement,(b)agreesthatitwillnotattempttodenyordefeatsuchpersonaljurisdictionbymotionorotherrequestforleavefromanysuchcourtand(c)agreesthatitwillnotbringanyactionrelatingtothisAgrccmentoranyofthetransactionscontemplatedbythisAgreementinanycourtotherthanafederalcourtsittingintheStateofNewYorkoraNewYorkstatecourt.19.INTERPRETATION.WhenareferenceismadeinthisAgreementtoaSectionsuchreferenceshallbetoaSectionofthisAgreementunlessotherwiseindicated.Wheneverthewords"include","includes"or"including"areusedinthisAgreement,theyshallbedeemedtobefollowedbythewords"withoutlimitation".ThedescriptiveheadingshereinareinsertedforconvenienceofreferenceonlyandarenotintendedtobepartofortoaffectthemeaningorinterpretationofthisAgreement.B-9, 20.COUNTERPARTS.ThisAgreementmaybeexecutedintwocounterparts,eachofwhichshallbedeemedtobeanoriginal,butbothofwhich,takentogether,shallconstituteoneandthesameinstrument.21.EXPENSES.ExceptasotherwiseexpresslyprovidedhereinorintheExchangeAgreement,allcostsandexpensesincurredinconnectionwiththetransactionscontemplatedbythisAgreementshallbepaidbythepartyincurringsuchexpenses.22.AMENDMENTS;WAIVER.ThisAgreementmaybeamendedby'hepartiesheretoandthetermsandconditionshereofmaybewaivedonlybyaninstrumentinwritingsignedonbehalfofeachofthepartieshereto,or,inthecaseofawaiver,byaninstrumentsignedonbehalfofthepartywaivingcompliance.23.EXTENSIONOFTIMEPERIODS.Thetimeperiodsforexerciseof,certainrightsunderSections2,6and7shallbeextended:(i)totheextentnecessarytoobtainallregulatoryapprovalsfortheexerciseofsuchrights,andfortheexpirationofallstatutorywaitingperiods;and(ii)totheextentnecessarytoavoidanyliabilityunderSection16(b)oftheExchangeActbyreasonofsuchexercise.MREPLACEMENTOFCOMPANYOPTION.UponreceiptbytheCompanyofevidencereasonablysatisfactory-toitoftheloss,theft,destructionormutilationofthisAgreement,and(inthecaseofloss,theftordestruction)ofreasonablysatisfactoryindemnification,anduponsurrenderandcancellationofthisAgreement,ifmutilated,theCompanywillexecuteanddeliveranewAgreementofliketenoranddate.B-'10 INWITNESSWHEREOF,thepartiesheretohavecausedthisAgreementtobeexecutedbytheirrespectivedulyauthorizedofficersasofthedatefirstabovesvritten.THEBROOKLYNUNIONGASCOMPANYBy:/S/ROBERTB.CATELLName:RobertB.CatellTitle:ChiefExecutiveOfficerILONGISLANDLIGHTINGCOMPANYBy/S/WILLIAMJ.CATACOSINOSName:Dr.WilliamJ.CatacosinosTitle:ChiefExecutiveOfficer
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ANNEXCAMENDEDANDRE<STATEDBROOKLYNUNIONSTOCKOPTIONAGREEMENTAMENDED,ANDRESTATEDSTOCKOPTIONAGREEMENT,datedasofJune26,1997,byandbetweenLONGISLANDLIGHTINGCOMPANY,aNewYorkcorporation("LILCO"),andTHEBROOKLYNUNIONGASCOMPANY,aNewYorkcorporation(the"COMPANY").WHEREAS,concurrentlywiththeexecutionanddeliveryofthisAgreement,(i)LILCOandtheCompanyareenteringintoanAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofthedatehereof(asthesamemaybeamendedfromtimetotime,the"EXCHANGEAGREEMENT"),whichprovides,amongotherthings,uponthetermsandsubjecttotheconditionsthereof,fortheexchangeofoutstandingsharesofcapitalstockofeachofLILCOandtheCompanyfornewlyissuedsharesofcapitalstockofaNewYorkcorporationtobeformed(the"BINDING,SHAREEXCHANGES"),and(ii)theCompanyandLILCOareenteringintoacertainamendedandrestatedstockoptionagreementdatedasofthedatehereofwherebyLILCOgrantstotheCompanyanoptionwithrespecttocertainsharesofLILCO'scommonstockonthetermsandsubjecttotheconditionssetforththerein(the"LILCOSTOCKOPTIONAGREEMENT");WHEREAS,asaconditiontoLILCO'swillingnesstoenterintotheoriginalAgreementandPlanofExchangebyandamongBrooklynUnion,LILCOandNYECOCorp.,datedasofDecember29,1996,LILCOhasrequestedthattheCompanyagree,andtheCompanyhassoagreed,togranttoLIE.COanoptionwithrespecttocertainsharesoftheCompany'scommonstock,onthetermsandsubjecttotheconditionssetforthherein;andWHEREAS,thepartiesdesiretoamendandrestatetheoriginalBrooklynUnionStockOptionAgreementasofthedatehereoftorefiecttheExchangeAgreement.NOW,THEREFORE,toinduceLILCOtoenterintotheExchangeAgreement,andinconsiderationoftheemutualcovenantsandagreemcntssetforthhereinandintheExchangeAgreement,thepartiesheretoagreeasfollows:1.GRANTOFOPTION.TheCompanyherebygrantsLILCOanirrevocableoption(the"COMPANYOPTION")topurchaseupto9,948,682shares,subjecttoadjustmentasprovidedinSection10(suchsharesbeingreferredtohereinasthe"COMPANYSHARES")ofcommonstock,parvalue$.335pershare,oftheCompany(the"COMPANYCOMMONSTOCK")(being19.9%ofthenumberofsharesofCompanyCommonStockoutstandingonthedatehereof)inthemannersetforthbelowataprice(the"EXERCISEPRICE")perCompanyShareof$30.0375(whichisequaltotheFairMarketValue(asdefinedbelow)ofaCompanyShareonthedatehereof)payable,atLILCO'soption,(a)incashor(b)subjecttotheCompany'shavingobtainedtheapprovalsofanyGovernmentalAuthorityrequiredfortheCompanytoacquiretheLILCOShares(asdefinedbelow)fromLILCO,whichapprovalstheCompanyshallusebesteffortstoobtain,insharesofcommonstock,parvalue$5.00pershare,ofLILCO("LILCOSHARES")ineithercaseinaccordancewithSection4hereof.Notwithstandingtheforegoing,innoeventshallthenumberofCompanySharesforwhichtheCompanyOptionisexercisableexceed19.9%ofthenumberofissuedandoutstandingsharesofCompanyCommonStock.Asusedherein,the"FAIRMARKETVALUE"ofanyshareshallbe'heaverage'ofthedailyclosingsalespriceforsuchshareontheNewYorkStockExchange(the"NYSE")duringthe10NYSEtradingdayspriortothefifthNYSEtradingdayprecedingthedatesuchFairMarketValueistobedetermined.Capitalizedtermsusedhereinbutnot-definedhereinshallhavethemeaningssetforthintheExchangeAgreement.2.EXERCISEOFOPTION.TheCompanyOptionmaybeexercisedbyLILCO,inwholeorinpart,atanytimeorfromtimetotimeaftertheExchangeAgreementbecomesterminablebyLILCOundercircumstanceswhichcouldentitleLILCOtoterminationfeesundereitherSection9.3(a)oftheExchangeAgreement(providedthattheeventsspecifiedinSection9.3(a)(ii)(x)oftheExchangeAgreementshallhaveoccurred,althoughtheeventsspecifiedinSection9.3(a)(ii)(y)thereofneednothaveoccurred)orSection9.3(b)oftheExchangeAgreement(regardlessofwhethertheExchangeAgreementisactuallyterminatedorwhetherthereoccursaclosingofanyBusinessCombinationinvolvingaTaiget'PartyoraclosingbywhichaTargetPartybecomesasubsidiary),anysucheventbywhichtheExchangeAgreementbecomessoC-1 terminablebyLILCObeingreferredtohereinasa"TRIGGEREVENT."TheCompanyshallnotifyLILCOpromptlyinwritingoftheoccurrenceofanyTriggerEvent,itbeing,understoodthatthegivingofsuchnoticebytheCompanyshallnotbeaconditiontotherightofLILCOtoexercisetheCompanyOption.IntheeventLILCOwishestoexercisetheCompanyOption,LILCOshalldelivertotheCompanyawrittennotice(an"EXERCISENOTICE")specifyingthetotalnumberofCompanySharesitwishestopurchase.EachclosingofapurchaseofCompanyShares(a"CLOSING")shalloccurataplace,onadateandatatimedesignatedbyLILCOinanExerciseNoticedeliveredatleasttwobusinessdayspriortothedateoftheClosing.TheCompanyOptionshallterminateupontheearlierof:(i)theEffectiveTime;(ii)theterminationoftheExchangeAgreementpursuanttoSection9.1thereof(otherthanuponorduringthecontinuanceofaTrigger,Event);or(iii)180daysfollowinganyterminationoftheExchangeAgreementuponorduringthecontinuanceofaTriggerEvent(orif,attheexpirationofsuch180dayperiodtheCompanyOptioncannotbeexercisedbyre'asonofanyapplicablejudgment,decree,order,'laworregulation,10businessdaysaftersuchimpedimenttoexeiciseshallhavebeenremovedorshallhavebecomefinalandnotsubjecttoappeal,butinno'eventunderthisclause(iii)laterthanApril28,1999).Notwithstandingtheforegoing,theCompany0'ptionmaynotbeexercisedifLILCOisinmaterialbreachofanyofitsmaterialrepresentationsorwarranties,orinmaterialbrcachofany'ofitscovenantsoragreements,containedinthisAgreementorintheExchangeAgreement.UponthegivingbyLILCOtotheCompanyoftheExerciseNoticeandthetenderoftheapplicableaggregateExercisePrice,LILCOshallbedeemedtobetheholderofrecordoftheCompanySharesissuableuponsuchexercise,notwithstandingthatthestocktransferbooksoftheCompanyshallthenbeclosedorthatcertificatesrepresentingsuchCompanySharesshallnotthenbeactuallydeliveredtoLILCO.3.CONDITIONSTOCLOSING.TheobligationoftheCompanytoissuetheCompanySharestoLILCOhereunderissubjecttotheconditions,which(otherthantheconditionsdescribedinclauses(i),(iii)and(iv)below)maybewaivedbytheCompanyinitssolediscretion,that(i)allwaitingperiods,ifany,undertheHSRAct,applicabletotheissuanceoftheCompanyShareshereundershallhaveexpiredorhavebeenterminated;(ii)theCompanyShares,andanyLILCOShareswhichareissuedinpaymentoftheExercisePrice,shallhavebeenapprovedforlistingontheNYSEuponofficialnoticeofissuance;(iii)allconsents,approvals,ordersorauthorizationsof,orregistrations,declarationsorfilingswith,anyfederal,stateorlocaladministrativeagencyorcommissionorotherfederal,stateorlocalGovernmentalAuthority,ifany,requiredinconnectionwiththeissuanceoftheCompanyShareshereundershallhavebeenobtainedormade,asthecasemaybe,including,without.limitation,ifapplicable,theapprovaloftheSECunderSection10ofthe1935ActoftheacquisitionoftheCompanySharesbyLILCOand,ifapplicable,theacquisitionbytheCompanyoftheLILCOSharesconstitutingtheExercisePricehereunder;and(iv)nopreliminaryorpermanentinjunctionorotherorderbyanycourtofcompetentjurisdictionprohibitingorotherwiserestrainingsuchissuanceshallbeineffect.4.CLOSING.AtanyClosing,(a)theCoinpanywilldelivertoLILCOoritsdesigneeasingle,certificateindefinitiveformrepresentingthenumberoftheCompanySharesdesignatedbyLILCOinitsExerciseNotice,suchcertificatetoberegisteredinthenameofLILCOandtobearthelegendsetforthinSection11,and(b)LILCOwilldelivertotheCompanytheaggregatepricefortheCompanySharessodesignatedandbeingpurchasedby(i)wiretransferofimmediatelyavailablefundsorcertifiedcheckorbankcheckor(ii)subjecttotheconditioninSection1(b),acertificateorcertificatesrepresentingthenumberofLILCOSharesbeingissuedbyLILCOinconsiderationthereof,asthecasemaybe.ForthepurposesofthisAgreement,thenumberofLILCOSliarestobedeliveredtotheCompanyshallbeequaltothequotientobtainedbydividing(i)theproductof(x)thenumberofCompanyShareswithrespecttowhichtheCompanyOptionisbeingexercisedand(y)theExercisePriceby(ii)theFairMarketValueoftheLILCOSharesonthedateimmediatelyprecedingthedatetheExerciseNoticeisdeliveredtotheCompany.TheCompanyshallpayallexpenses,andanyandallUnitedStatesfederal,stateandlocaltaxesandotherchargesthatmaybepayableinconnectionwiththepreparation,issueanddeliveryofstockcertificatesunderthisSection4inthenameofLILCOoritsdesignee.5.REPRESENTATIONSANDWARRANTIESOFTHECOMPANY.TheCompany'representsandwarrantstoLILCOthat(a)exceptassetforthinSection4.1oftheBrooklynUnionDisclosureC-2 0Schedule,theCompanyisacorporationdulyorganized,v'alidlyexisting'andinactivestatusunderthelawsoftheStateofNewYorkandhasthecorporatepowerandauthoritytoenterintothisAgreementand,subjecttoobtainingtheapplicableapprovalofshareholdersoftheCompanyfortherepurchaseofCompanySharespursuanttoSection7(a)belowundercircumstanceswhereSection513(e)oftheNYBCLwouldbeapplicable(the"BUYBACKAPPROVALS")andsubjecttoanyregulatoryapprovalsreferredtohereinandtotheprovisionsofSection513(a)oftheNYBCL,ifapplicable,tocarryou'titsobligationshereunder,(b)theexecutionanddeliveryofthisAgreementbytheCompanyandtheconsummationbythcCompanyofthetransactionscontemplatedherebyhavebeendulyauthorizedby'allnecessarycorporateactiononthepartoftheCompanyand.noothercorporateproceedingsonthepartoftheCompanyarenecessarytoauthorizethisAgreementoranyofthetransactionscontemplatedhereby(otherthananyrequiredBuybackApprovals),(c)suchcorporateaction(includingtheapprovaloftheBoardofDirectorsoftheCompany)isintendedtorenderinapplicabletothisAgreementandtheExchangeAgreementandthetransactions'contemplatedherebyandthereby,theprovisionsoftheNYBCLreferredtoinSection4.15oftheExchangeAgreement,(d)thisAgreement.hasbeendulyexecutedanddeliveredbytheCompany,constitutesavalid,andbindingobligationoftheCompanyand,assumingthisAgreementconstitutesavalidandbindingobligationofLILCO,isenforceableagainsttheCompanyinaccordancewithitsterms,(e)thcCompanyhastakenallnecessarycorporateactiontoauthorizeandreserveforissuanceandtopermitittoissue,uponexerciseoftheCompanyOption,andatalltimesfromthedatehereofthroughtheexpirationoftheCompanyOptionwillhavereserved,9,948,682authorizedandunissuedCompanyShares,suchamountbeingsubjecttoadjustmentasprovidedinSection10,allofwhich,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fullypaidandnonassessable,(f)upondeliveryoftheCompany,SharestoLILCOupontheexerciseoftheCompanyOption,LILCOwillacquiretheCompanySharesfreeandclearofallclaims,liens,chargeS,encumbrancesandsecurityinterestsofanynaturewhatsoever,(g)exceptasdescribedinSection4.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbytheCompanydoesnot,andtheconsummationbytheCompanyofthetransactionscontemplatedherebywillnot,violate,conflictwith,orresultinabreachofanyprovisionof,orconstituteadefault(withorwithoutnoticeorlapseoftime,orboth)under,orresultintheterminationof,orAcceleratetheperformancerequiredby,orresultinarightoftermination,cancellation,oraccelerationofanyobligationorthclossofamaterialbenefitunder,orthecreationofalien,pledge,securityinterestorotherencumbranceonassets(anysuchconllict,violation,default,rightoftermination,cancellationoracceleration,lossorcreation,a"VIOLATION")oftheCompanyoranyofitssubsidiaries,pursuantto,(A)anyprovisionofthecertificateofincorporationorby-lawsoftheCompany,(B)anyprovisionsofanyloanorcreditagreement,note,mortgage,indenture,lease,Companybenefitplanorotheragreement,obligation,instrument,permit,concession,franchise,licenseor(C)anyjudgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletotheCompanyoritspropertiesorassets,whichViolation,inthecaseofeachofclauses(B)and(C),couldreasonablybeexpectedtohaveamaterialadverseeffecton'heCompanyanditssubsidiariestaken'asawhole,(h)exceptasdescribedinSection4.4(c)oftheExchangeAgreementorSection1(b)orSection3'hereof,theexecutionanddeliveryofthisAgreementbytheCompanydoesnot,andtheperformanceofthisAgreemcntbytheCompanywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthority,(i)noneoftheCompany,any'ofitsaffiliatesoranyoneactingonitsortheirbehalfhasissued,soldorofferedanysecurityoftheCompany'oanypersonundercircumstancesthatwouldcausetheissuanceandsaleoftheCom'panyShares,ascontemplatedbythisAgreement,tobesubjecttotheregistrationrequirementsoftheSecuritiesActasineffectonthedatehereofand,assumingtherepresentationsofLILCOcontainedinSection6(h)aretrueandcorrect,theissuance,saleanddeliveryofthcCompanyShareshereunderwouldbeexemptfromtheregistrationandprospectusdeliveryrequirementsoftheSecuritiesAct,asineffectonthedatehereof(andtheCompanyshallnottakeanyactionwhichwould'causetheissuance,saleanddeliveryoftheCompanyShareshereundernottobeexemptfromsuchrequirements),and(j)anyLILCOSharesacquiredpursuanttothisAgrccmentwillbeacquiredfortheCompany'sownaccount,forinvestmentpurposesonlyandwillnotbeacquiredbytheCompanywithaviewtothepublicdistributionthereofinviolationofanyapplicableprovisionoftheSecuritiesAct.C-3 6.REPRESENTATIONSANDWARRANTIESOFLILCO.LILCOrepresentsandwarrantstotheCompanythat(a)LILCOisacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsoftheStateofNewYorkandhasthecorporatepowerandauthoritytoenterintothisAgreementandtocarryoutitsobligationshereunder,(b)theexecutionanddeliveryofthisAgreementbyLILCOandtheconsummationbyLILCOofthetransactionscontemplatedherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofLILCOandnoothercorporateproceedingsonthepartofLILCO'renecessarytoauthorizethisAgreementoranyofthetransactionscontemplatedhereby,(c)thisAgreementhasbeendulyexecutedanddeliveredbyLILCOandconstitutesavalidandbindingobligationofLILCO,and,assumingthisAgreementconstitutesavalidandbindingobligationoftheCompany,isenforceableagainstLILCOinaccordancewithitsterms,(d)priortoanydeliveryofLILCOSharesinconsiderationofthepurchaseofCompanyShares,pursuanthereto,LILCOwillhavetakenallnecessarycorporateactiontoauthorizeforissuanceand.topermitittoissuesuchLILCOShares,allofwhich,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fullypaidandnonassessable,andtorenderinapplicabletothereceiptbytheCompanyoftheLILCOSharestheprovisionsoftheNYBCLreferredtoinSection5.15oftheExchangeAgreement,(e)uponanydeliveryofsuchLILCOSharestotheCompanyinconsiderationofthepurchaseofCompanySharespursuanthereto,theCompanywillacquiretheLILCOSharesfreeandclearofall-claims,liens,charges,encumbrancesandsecurityinterestsofanynaturewhatsoever,(f)exceptasdescribedinSection5.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbyLILCOdoesnot,andtheconsummationbyLILCOofthetransactionscontemplatedherebywillnot,violate,conflictwith,orresultinthebreachofanyprovisionof,orconstituteadefault,(withorwithoutnoticeorlapseoftime,orboth)under,orresultinanyViolationbyLILCOoranyofitssubsidiaries,pursuantto(A)anyprovisionofthecertificateofincorporationorby-lawsofLILCO,(B)anyprovisionsofanyloanorcreditagreement,note,mortgage,indenture,lease,LILCObenefitplanorotheragreement,obligation,instrument,permit,concession,franchise,licenseor(C)anyjudgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletoLILCOoritspropertiesorassets,whichViolation,inthecaseofeachofitsclauses(B)and/or(C),wouldhaveamaterialadverseeffectonLILCOanditssubsidiariestakenasawhole,(g)exceptasdescribedinSection5.4(c)oftheExchangeAgreementorSection1(b)orSection3hereof,theexecutionand'deliveryofthisAgreementbyLILCOdoesnot,andtheconsummationbyLILCOofthetransactionscontemplatedherebywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthorityand(h)anyCompanySharesacquireduponexerciseoftheCompanyOptionwillbeacquiredforLILCO'sownaccount,forinvestmentpurposesonlyandwillnotbe,andtheCompanyOptionisnotbeing,acquiredbyLILCOwithaviewtothepublicdistributionthereofinviolationofanyapplicableprovisionoftheSecuritiesAct.7.CERTAINREPURCHASES.(a)LILCOPUT,AttherequestofLILCObywrittennoticeatanytimeduringwhichtheCompanyOptionisexercisablepursuanttoSection2(the"REPURCHASEPERIOD"),theCompany(oranysuccessorentitythereof)shallrepurchasefromLILCOalloranyportionoftheCompanyOption,atthepricesetforthinsubparagraph(i)below,or,attherequestofLILCObywrittennoticeatanytimepriortoAugust31,1998(providedthatsuchdateshallbeextendedtoApril28,1999underthecircumstanceswherethedateafterwhicheitherpartymayterminate,theExchangeAgreementpursuanttoSection9.1(b)oftheExchangeAgreementhasbeenextendedtoApril28,1999),the,Company(oranysuccessorentitythereof)shallrepurchasefromLILCOalloranyportionoftheCompanySharespurchasedbyLILCOpursuanttotheCompanyOption,atthepricesetforthinsubparagraph(ii)below:(i)thedifferencebetweenthe"MARKET/OFFERPRICE"forsharesofCompanyCommonStockasofthedateLILCOgivesnoticeofitsintenttoexerciseitsrightsunderthis"Section7(definedasthehigherof(A)thepricepershareofferedasofsuchdatepursuanttoanytenderorexchangeofferorotherofferwithrespecttoaBusinessCombinationwhichwasmadepriortosuchdateandnotterminatedor,withdrawnasofsuchdate(the"OFFERPRICE")and(B)theFairMarketValueofCompanyCommonStockasofsuchdate(the"MARKETC-4 TPRICE"))andtheExercisePrice,multipliedbythenumberofCompanySharespurchasablepursuantto'heCompanyOption(orportionthereofwithrespecttowhichLILCOisexercisingitsrightsunderthisSection7),butonlyiftheMarket/OfferPriceisgreaterthantheExercisePrice;(ii)theproductof(x)thesumof(A)theExercisePricepaidbyLILCOperCompanyShareacquiredpursuanttotheCompanyOptionand(B)thedifferencebetweentheMarket/OfferPriceandtheExercisePrice,butonlyiftheMarket/OfferPriceisgreaterthantheExercisePrice,'and(y)thenumberofCompanySharestoberepurchasedpursuanttothisSection7.Forpurposesofthisclause(ii),theOfferPriceshallbethehighestpricepershareofferedpursuanttoatenderore/changeofferorotherBusinessCombinationofferduringtheRepurchasePeriodpriortothedeliverybyLILCOofanoticeofrepurchase.h4(b)REDELIVERYOFLILCOSHARES.IfLILCO,electedtopurchaseCompanySharespursuanttotheexerciseoftheCompanyOptionbytheissuanceanddeliveryofLILCOShares,thentheCompanyshall,ifsorequestedbyLILCO,infulfillmentofitsobligationpursuanttoclause(a)ofSection7(a)(ii)(x)(thatis,withrespecttotheExercise.Priceonlyandwithoutlimitationtoitsobligationtopayadditionalconsiderationunderclause(b)ofSection7(a)(ii)(x)),redeliverthecertificateforsuchLILCOSharestoLILCO,freeandclearofallliens,claims,damages,chargesandencumbrancesofanykind,ornaturewhatsoever;provided,however,thatiflessthanalloftheCompany'SharespurcliasedbyLILCOpursuanttotheCompanyOptionaretoberepurchasedpursuanttothisSection7,thenLILCOshallissuetotheCompanyanewcertificaterepresentingthoseLILCOShareswhicharenotduetoberedeliveredtoLILCOpursuanttothisSection7astheyconstitutedpaymentoftheExercisePricefortheCompanySharesnotbeingrepurchased.(c)PAYMENTANDREDELIVERYOFCOMPANYOPTIONORSHARES.IntheeventLILCOexercisesitsrightsunderthisSection7,theCompanyshall,within10businessdaysthereafter,paytherequiredamounttoLILCOinimmediatelyavailablefundsandLILCOshallsurrendertotheCompanytheCompanyOptionorthecertificatesevidencingtheCompanySharespurchasedbyLILCOpursuantthereto,andLILCOshallwarrantthatitownstheCompanyOptionorsuchsharesandthattheCompanyOptionorsuchsharesarethenfreeandclear'fallliens,claims,damages,chargesand'ncumbrancesofanykindornaturewhatsoever.(d)LILCOCALL.IfLILCOhaselectedtopurchaseCompanySharespursuanttotheexerciseoftheCompanyOptionbytheissuanceanddeliveryofLILCOShares,notwithstandingthatLILCOmaynolongerholdanysuchCompanySharesorthatLILCOelectsnottoexerciseitsotherrightsunderthisSection7,LILCOmayrequire,atanytimeorfromtimetotimepriortoAugust31,1998(providedthatsuchdateshallbeextendedtoApril28,1999under,thecircumstanceswhere'hedateafterwhicheitherpartymayterminatetheExchangeAgreementpursuanttoSection9.1(b)oftheExchangeAgreementhasbeenextendedtoApril28,1999),theCompanytoselltoLILCOanysuchLILCOSharesattheFairMarketValuethathadbeenattributedtosuchLILCOSharespursuantto'Section4plusinterestattherateof6.5%perannumonsuchamountfromtheClosingDaterelatingtotheexchangeofsuchLILCOSharespursuanttoSection4tothe"closingdateunderthisSection7(d)lessanydividendsonsuchLILCOSharespaidduringsuchperiodordeclaredandpayabletostockholdersofrecordonadateduringsuchperiod.(e)REPURCHASEPRICEREDUCEDATLILCO'SOPTION.IntheeventtherepurchasepricespecifiedinSection7(a)wouldsubjectthepurchaseoftheCompanyOptionortheCompanySharespurchasedbyLILCOpursuanttotheCompanyOptiontoa'voteoftheshareholdersoftheCompanypursuanttoSection513(e)oftheNYBCL,thenLILCOmay,atifselection,reducetlierepurchasepricetoanamountwhichwouldpermitsuchrepurchasewithoutthenecessityforsuchashareholdervote.8.RESTRICTIONSONTRANSFER.(a)RESTRICTIONSONTRANSFER.PriortotheExpirationDate,neitherpartyshall,directlyorindirectly,byoperationoflaworotherwise,sell,assign,pledge,orotherwisedisposeofortransferC-5 any'shares'fcapitalstockoftheotherpartyacquiredbysuchpartypursuanttothisAgreement("RestrictedShares")andbeneficiallyownedbysuchparty,otherthan(i)pursuanttoSection7,or(ii)inaccordancewithSection8(b)orSection9.(b)PERMEATEDSALES.FollowingtheterminationoftheExchangeAgreement,apartyshallbepermittedtosellanyRestrictedSharesbeneficiallyownedbyitifsuchsaleismadepursuanttoatenderorexchangeofferthathasbeenapprovedorrecommended,orotherwisedeterminedtobefairtoandinthebestiiiterestsoftheshareholdersoftheotherparty,byamajorityofthemembersoftheBoardofDirectorsofsuchotherpartywhichmajorityshallincludeamajorityofdirectorswhoweredirectorspriortotheannouncementofsuchtenderorexchangeoffer.9.REGISTRATIONRIGHTS.FollowingtheterminationoftheExchangeAgreement,eachpartyhereto(a"DESIGNATEDHOLDER")maybywrittennotice(the"REGISTRATIONNOTICE")totheotherparty(the"REGISTRANT")requesttheRegistranttoregisterundertheSecuritiesActalloranypartoftheRestrictedSharesbeneficiallyownedbysuchDesignatedHolder(the"REGISTRABLESECURITIES")pursuanttoabonafidefirmcommitmentunderwrittenpublicofferinginwhichtheDesignatedHolderandtheunderwritersshalleffectaswideadistributionofsuchRegistrableSecuritiesasisreasonablypracticableandshallusetheirbesteffortstopreventanyp'erson(includinganyGroup(asusedinRule13d-5undertheExchangeAct))anditsaffiliatesformpurchasingthroughsuchofferingRestrictedSharesrepresentingmorethan1%oftheoutstandingsharesofcommonstockoftheRegistrantonafullydilutedbasis(a"PERMIT'EDOFFERING'").TheRegistrationNoticeshallincludea"certificateexecutedbytheDesignatedHolderanditsproposedmanagingunderwriter,whichunderwritershallbeaninvestmentbankingfirmofnationallyrecognizedstanding(the"MANAGER"),st'atingthat(i)'theyhaveagoodfaithintentiontocommencepromptlyaPermittedOfferingand(ii)theManageringoodfaithbelievesthat,basedonthethenprevailingmarketconditions,itwillbeabletoselltheRegistrableSecuritiesatapersharcpriceequaltoatleast80%ofthethenFairMarketValueofsuchshares.TheRegistrant(and/oranypersondesignatedbytheRegistrant)shallthereuponhavetheoptionexercisablebywrittennoticedelivered~fotheDesignatedHolderwithin10businessdaysafterthereceiptoftheRegistrationNotice,irrevocablyto~a'greetopurcliasealloranypartofthe'RegistrableSecuritiesproposedtobesosoldforcashataprice(the"OPTIONPRICE")equaltotheproductof(i)thenumberofRegistrableSecuritiestobesopurchasedbytheRegistrantand(ii)thethenFairMarketValueofsuchshares.AnysuchpurchaseofRegistrableSecuritiesbytheRegistrant(oritsdesignee)hereundershalltakeplaceataclosingtobeheldattheprincipalexecutiveofficesoftheRegistrantorattheofficesofitscounselatanyreasonabledateandtimedesignatedbytheRegistrantand/orsuchdesigneeinsuchnoticewithin20businessdaysafterdeliveryofsuchnotice.AnypaymentforthesharestobepurchasedshallbemadebydeliveryatthetimeofsuchclosingoftheOptionPrice'nimmediatelyavailablefunds.IftheRegistrantdoesnotelecttoexerciseitsoptionpursuanttothisSection9withrespecttoallRegistrableSecurities,itshalluseitsbesteffortstoeffect,aspromptlyaspracticable,theregistrationundertheSecuritiesActoftheunpurchasedRegistrableSecuritiesproposedtobesosold;provided,however,that(i)neitherpartyshallbeentitledtomorethananaggregateoftwoeffectiveregistrationstatementshereunderand(ii)theRegistmntwillnotberequiredtofileanysuchregistrationstatementduringanyperiodoftime(nottoexceed40daysaftersuchrequestinthecaseofclause(A)belowor90daysinthecaseofclauses(B)and(C)below)when(A)theRegistrantisinpossessionofmaterialnon-publicinformationwhichitreasonablybelieveswouldbedetrimentaltobedisclosedatsuchtimeand,intheopinionofcounseltotheRegistrant,suchinformationwouldhavetobedisclosedifaregistrationstatementwercfiledatthattime;(B)theRegistrantisrequiredundertheSecuritiesActtoincludeauditedfinancialstatementsforanyperiodinsuchregistrationstatementandsuchfinancialstatementsarenotyetavailableforinclusioninsuchregistrationstatement;or(C)theRegistrantdetermines,initsreasonablejudgment,thatsuchregistrationwouldinterferewithanyfinancing,acquisitionorothermaterialtransactioninvolvingtheRegistrantoranyofitsaffiliates.TheRegistrantshalluseitsreasonablebesteffortstocauseanyRegistrableSecuritiesregisteredpursuanttothisSection9tobequalifiedforsaleunderthesecuritiesorBlue-SkylawsofsuchjurisdictionsastheDesignatedHoldermayreasonablyrequestandshallcontinuesuchregistrationorC-6 equalificationineffect,insuchjurisdiction;provided,however,that,theRegistrantshallnotberequiredtoqualifytodobusiness.in,orconsenttogeneralserviceofprocessin,anyjurisdictionbyreasonof'thisprovision.TheregistrationrightssetforthinthisSection9aresubjecttotlieconditionthattheDesignatedHoldershallprovidetheRegistrantwithsuchinformationwithrespecttosuchholder'sRegistrableSecurities,theplansforthedistributionthereof,andsuchotherinformationwithrespecttosuchholderas,inthereasonablejudgmentofcounselfortheRegistrant,isnecessarytoenablethcRegistranttoincludeinsuchregistrationstatementallmaterialfactsrequiredtobedisclosedwithrespecttoaregistrationthereunder.AregistrationeffectedunderthisSection9shallbeeffectedattheRegistrant'sexpense,exceptforunderwritingdiscountsandcommissionsandthefeesandtheexpensesofcounseltotheDcsignatcdHolder,andthcRegistrantshallprovidetotheunderwriterssuchdocumentation(includingcertificates,opinionsof'oun'seland"comfort"lettersfromauditorsasarecustomaryinconnectionwithunderwrittenpublicofferingsassuchunderwriters'mayreasonablyrequire.Inconnectionwithanysuchregistration,thepartiesagree(i).toindemnifyeachotlierandtheunderwritersinthecustomarymanner,(ii)toenterintoanunderwritingagreementinformandsubstancecustomaryfortransactionsofsuchtypewiththcManagerand.theotherunderwritersparticipatinginsuchofferingand(iii)totakeallfurther'a'ctionswhichshallbereasonablynecessary'toeffectsuchregistrationandsale(including,iftheManagerdeemsitnecessary,participatinginroad-showpresentations).TheRegistrantshallbeentitledtoinclude(atitsexpense)additioiialsharesofitscommonstockinaregistrationeffectedpursuanttothisSection9onlyifandtotheextenttheManagerdeterminesthatsuchinclusionwillnotadverselyaffecttheprospectsofsuccessofsuchoffering.10.ADJUSTMENTUPONCHANGESINCAPITALIZATION.WithoutlimitationtoanyrestrictionontheCompanycontainedinthisAgreementorintheExchangeAgreement,intheeventofanytchangeinCompanyCommonStockbyreasonofstockdividends,splitups,mergers(otherthanthcBindingSliareExchanges),recapitalizations,combinations,exchangeofsharesorthelike,thetypeandnumberofsharesorsecuritiessubjecttotheCompany'ption,andthepurchasepricepersharcprovidedinSectionI,shallbeadjustedappropriatelytorestoretoLILCOitsrightshercundcr,includingtherighttopurchasefromthcCompany(oritssuccessors)sharesofCompanyCommonStockrepresenting19.9%oftheOutstandingCompanyCommonStockfortheaggregateExercisePricecalculatedasofthedateofthisAgrccmentasprov'idcdinSection1.11.RESTRICTIVELEGENDS.EachcertificaterepresentingsharesofCompanyCommonStockissuedtoLILCOhereunder,andLILCOShares,ifany,deliveredtotheCompanyataClosing,shallincludealegendinsubstantiallythefollowingform:THE'ECURITIESREPRESENTEDBYTHISCERTIFICATEHAVENOTBEENREGISTEREDUNDERfHESECURITIESACTOF1933,ASAMENDED,ANDMAYBEREOFFEREDORSOLDONLYIFSOREGISTEREDOR,IFANEXEMPTIONFROMSUCHREGISTRATIONISAVAILABLE.SUCHSECURITIESAREALSOSUBJECTTOADDITIONALRESTRICTIONSONTRANSFERASSETFORTHINTHEAMENDEDANDRESTATEDSTOCKOPTIONAGREEMENT,DATEDASOFJUNE16,1997,A'OPYOFWHICHMAYBEOBTAINEDFROMTHEISSUERUPONREQUEST.Itisunderstoodandagreedthat:(i)thereferencetotheresalerestrictionsoftheSecuritiesActintheabovelegendshallberemovedbydeliveryofsubstitutecertificates(s)withoutsuchreferenceifLILCOortheCompany,asthccasemaybe,shallhavedeliveredtotheotherpartyacopyofaletterfromthestaffoftheSecuritiesandExchangeCommission,oranopinionofcounsel,inforinandsubstancesatisfactorytotheotherparty,totheeffectthatsuchlegendisnotrequiredforpurposesoftheSecuritiesAct;(ii)thereferencetotheprovisionstothisAgreementintheabovelegendshallberemovedbydeliveryofsubstitutecertificat(s)withoutsuchreferenceiftheshareshavebeensoldortransferredincompliancewiththeprovisionsofthisAgreementandundercircumstancesthatdonot'equiretheretentionofsuchreference;C-7 and(iii)thelegendshallberemovedinitsentiretyiftheconditionsintheprecedingclauses(i)and(ii)are'othsatisfied.Inaddition,suchcertificatesshallbearanyotherlegendasmayberequiredbylaw.CertificatesrepresentingsharessoldinaregisteredpublicofferingpursuanttoSection9shallnotberequiredtobearthelegendsetforthinSection11.12.BINDINGEFFECT;NOASSIGNMENT;NOTHIRDPARTYBENEFICIARIES.ThisAgreementshallbebindinguponandinuretothebenefitofthepartiesheretoandtheirrespectivesuccessorsandpermittedassigns,ExceptasexpresslyprovidedforinthisAgreement,neitherthisAgreementnortherightsortheobligationsofeitherpartyheretoareassignable,exceptbyoperationoflaw,orwiththewritten,consentofthe.otherparty.NothingcontainedinthisAgreement,expressorimplied,isintendedtoconferuponanypersonotherthanthepartiesheretoandtheirrespectivepermittedassignsanyrightsorremediesofanynaturewhatsoeverbyreasonofthisAgreement.AnyRestrictedSharessoldbyapartyincompliancewiththeprovisionsofSection9shall,uponconsummationofsuchsale,befreeoftherestrictionsimposedwithrespecttosuchsharesbythisAgreement,unlessanduntilsuchpartyshallrepurchaseorotherwisebecomethebeneficialownerof'suchshares,andanytransfereeofsuchsharesshallnotbeentitledtotheregistrationrightsofsuchparty.h13.SPECIFICPERFORMANCE.The,partiesrecognizeandagreethatifforanyreasonany,oftheprovisionsofthisAgreementarenotperformedinaccordancewiththeirspecifictermsorareotherwisebreached,iinmediateandirreparableharmorinjurywouldbecausedforwhichmoneydamageswouldnotbeanadequateremedy.Accordingly,eachpartyagreesthat,inadditiontootherremedies,theotherpartyshallbe'entitledtoaninjunctionrestraininganyviolationorthreatenedviolationoftheprovisionsofthisAgreement.'IntheeventthatanyactionshouldbebroughtinequitytoenforcetheprovisionsoftheAgreement,neitherpartywillallege,andeachpartyherebywaivesthedefense,thatthereisadequateremedyatlaw.14.ENTIREAGREEMENT.ThisAgreement,theLILCOStockOptionAgreement,theConfidentialityAgreementandtheExchangeAgreement(includingtheexhibitsandschedulesthereto)constitutetheentireagreementamongthepartieswithrespecttothesubjectmatterhereofandthereofandsupersedeallotherprioragreementsandunderstandings,bothwrittenandoral,amongthepartiesoranyofthemwithrespecttothesubjectmatterhereofandthereof.'5.FURTHERASSURANCES.Eachpartywillexecuteanddeliverallsuchfurtherdocumentsandinstrumentsandtakeallsuchfurtheractionasmaybenecessaryinordertoconsummatethetransactionscontemplatedhereby.16.VALIDITY.TheinvalidityorunenforceabilityofanyprovisionsofthisAgreementshallnotaffectthevalidityorenforceabilityoftheotherprovisionsofthisAgreement,,whichshallremaminfullforceandeffect.IntheeventanycourtorothercompetentauthorityholdsanyprovisionsofthisAgreementtobenull,voidorunenforceable,thepartiesheretoshallnegotiateingoodfaiththeexecutionanddeliveryofanamendmenttothisAgreementinorder,asnearlyaspossible,toeffectuate,totheextentpermittedbylaw,theintentofthepartiesheretowithrespecttosuchprovision'andtheeconomiceffectsthereof.IfforanyreasonanysuchcourtorregulatoryagencydeterminesthatLILCOisnotpermittedtoacquire,ortheCompanyisnotpermittedtorepurchasepursuanttoSection7,thefullnumber'fsharesofCompanyCommoriStockprovidedinSection1hereof(asthesamemaybeadjusted),itistheexpressintentionoftheCompanytoallowLILCOtoacquireortorequiretheCompanytorepurchasesuchlessernumberofsharesasmaybepermissible,withoutanyamendmentormodificationhereof.Eachpartyagreesthat,shouldanycourtorothercompetentauthorityholdanyprovisionofthisAgreementor'arthereoftobenull,voidorunenforceable,ororderanypartytotakeanyactioninconsistentherewith,ornottakeanyactionrequiredherein,theotherpartyshallnotbeentitledtospecificperformanceofsuchprovisionorparthereofortoanyotherremedy,includingbutnotlimitedtomoneydamages,forbreachhereoforofanyotherprovisionofthisAgreementorparthereofastheresultofsuchholdingororder.17.NOTICES.All'noticesandothercommunicationhereundershallbeinwritingandshallbedeemedgivenif(i)deliveredpersonally,or(ii)sentbyreputableovernightcourierservice,orC-8 (iii)telecopied,(whichisconfirmed),or(iv)fivedaysafterbeingmailedbyregisteredor,certifiedmail(returnreceiptrequested)tothepartiesatthefollowingaddresses(oratsuchotheraddressforapartyasshallbe.specifiedbylikenotice):A.IftoLILCO,to:LongIslandLightingCompany175EastOldCountyRoadHicksville~NewYork11801Attention:ChiefExecutiveOfficerwithacopyto:Kramer,Levin,Naftalis&Frankel919ThirdAvenueNewYork,NewYork10022Attention:,ThomasE.ConstanceB.IftotheCompany,to:ThcBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn,NewYork11201-3850Atrenrion:ChiefExecutiveOfficerwithacopyto:Wachtell,Lipton,Rosen&Kate51West52ndStreetNewYork,NewYork10019Attention:SethA.Kaplan18.GOVERNINGLAW;CHOICEOFFORUM.ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkapplicabletoagreementsmadeandtobeperformedentirelywithinsuchStateandwithoutregardtoitschoiceoflawprinciples.Eachofthepartieshereto(a)conscntstosubmititselftothepersonaljurisdictionofanyfederalcourtlocatedintheStateofNewYorkoranyNewYorkstatecourtintheeventanydisputearisesoutofthisAgreemcntoranyofthetransactionscontemplatedbythisagreement,(b)agreesthatitwillnotattempttodenyordefeatsuchpersonaljurisdictionbymotionorotherrequestforleavefromanysuchcourtand(c)agreesthatitwillnotbringanyactionrelatingtothisAgreementoranyofthetransactionscontemplatedbythisAgreementinanycourtotherthanafederalcourtsittingintheStateofNewYorkoraNewYorkstatecourt.19.INTERPRETATION.WhenareferenceismadeinthisAgreementtoaSectionsuchreferenceshallbetoaSectionofthisAgreementunlessotherwiseindicated.Wheneverthewords"include","includes"or"including"areusedinthisAgreement,theyshallbedeemedtobefollowedbythewords"withoutlimitation".ThedescriptiveheadingshereinareinsertedforconvenienceofreferenceonlyandarenotintendedtobepartofortoaffectthemeaningorinterpretationofthisAgreement.20.COUNTERPARTS.'hisAgreementmaybeexecutedintwocounterparts,eachofwhichshallbedeemedtobeanoriginal,butbothofwhich,takentogether,shallconstituteoneandthesameinstrument.21.EXPENSES.ExceptasotherwiseexpresslyprovidedhereinorintheExchangeAgreement,allcostsandexpensesincurredinconnectionwiththetransactionscontemplatedbythisAgreementshallbepaidbythepartyincurringsuchexpenses.22.AMENDMENTS;WAIVER.ThisAgreementmaybeamendedbythepartiesheretoandthetermsandconditionshereofmaybewaivedonlybyaninstrumentinwritingsignedonbehalfofeachofthepartieshereto,or,inthecaseofawaiver,byaninstrumentsignedonbehalfofthepartywaivingcompliance.C-9 23.EXTENSIONOFTIMEPERIODS.ThetimeperiodsforexerciseofcertainrightsunderSections2,6and7shallbeextended:(i)totheextentnecessarytoobtainallregulatoryapprovalsfortheexerciseofsuchrights,andfortheexpirationofallstatutorywaitingperiods;and(ii)totheextentnecessarytoavoidanyliabilityunderSection16(b)oftheExchangeActbyreasonofsuchexercise.24.REPLACEMENTOFCOMPANYOPTION.UponreceiptbytheCompanyofevidencereasonablysatisfactorytoitoftheloss,theft,destructionormutilationofthisAgreement,and(inthecaseofloss,theftordestruction)ofreasonablysatisfactoryindemnification,anduponsurrenderand.cancellation~ofthisAgreement,ifmutilated,theCompanywillexecuteanddeliveranewAgreementofliketenoranddate.C-10 eINWITNESSWHEREOF,thepartiesheretohavecausedthisAgreementtobeexecutedbytheirrespectivedulyauthorizedofficersasofthedatefirstabovewritten.LONGISLANDLIGHTINGCOMPANY/S/WILLIAMJ.CATACOSINOSName:Dr.WilliamJ.CatacosinosTitle:ChiefExecutiveOfficerTHEBROOKLYNUNIONGASCOMPANYBy:/s/RQBERTB.CATELLName:RobertB.CatellTitle:ChiefExecutiveOfficer
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eANNEXDAGREEMENTANDPLANOFMERGERbyandamongBLHOLDINGCORP.,LONGISLANDLIGHTINGCOMPANY,LONGISLANDPOWERAUTHORITYANDLIPAACQUISITIONCORP.DatedasofJune26,1997
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eSection1.1Section1.2Section1.3Section1.4Section1.5Section1.6Section1.7Section1.8Section1.9Section1.10Section1.11Section2.1Section2.2Section2.3Section3.1Section4.1Sect)on4.2Section4.3Section4.4Section4.5Section4.6Section4.7Section4.8Section4.9Section4.10Section4.11Section4.12Section4.13Section5.1Section5.2Section5.3Section5.4Scctton5.5Section6.1Section6.2TABLEOFCONTENTSARTICLEITHEMERGER;RELATEDTRANSACTIONSTheMergerEffectoftheMergerEffectiveTimeoftheMerger.RelatedTransactionsDescriptionofAssetsLiabilities.TransitionWorkResignationsFormationofLIPASub.CharterAmendment.CertainOtherPreferredStock.ARTICLEIITREATMENTOFSHARESEffectofthcMergeronCapitalStockDissentingSharesIssuanceofParentSharesARTICLEIIICLOSINGClosingARTICLEIVREPRESENTATIONSANDWARRANTIESOFPARENTOrganizationandQualificationSubsidiariesCapitalization.Authority;Non-Contravention;StatutoryApprovals;ComplianceReportsandFinancialStatementsAbsenceofCertainChangesorEvents.LitigationRegistrationStatementandProxyStatement.EnvironmentalProtectionRegulationasaUtilityVoteRequireInsura'nceDisclosure.ARTICLEVREPRESENTATIONSANDWARRANTIESOFAUTHORITYANDLIPASUBOrganizationAuthority;Non-Contravention;StatutoryApprovals;ComplianceDisclosu're.OwnershipofLIPASub;NoPriorActivities.OwnershipofCompanyCommonStock.ARTICLEVICOVENANTSCovenantsofParentandCompany.CovenantsofAuthorityandLIPASub ARTICLEVIIADDITIONALAGREEMENTSSection7.1Section7.2Section7.3~Section7.4Section7.5Section7.6Section7.7Section7.8Section7.9,Section7.10Section7.11Section7.12Section7.13Section7.14AccesstoInformationProxyStatementandRegistrationStatement.ShareholderApproval.DisclosureSchedule.....RegulatoryMattersPublicAnnouncements.ConfidentialityCertainLitigationExpensesFurtherAssurancesPurchasePriceAllocation.ReceiptofConsentsandApprovals........CertainOtherMatters.OpinionsofCounsel.Section8.1Section8.2Section8.3ARTICLEVIIICONDITIONSConditionstoEachParty'sObligationsConditionstoObligationsofAuthorityandLIPASubConditionstoObligationsofParentandCompany.Section9.1Section9.2Section9.3Section9.4Section9.5ARTICLEIXTERMINATIONANDAMENDMENTTermination.EffectofTermination.SurvivalAmendmentExtension;WaiverARTICLEEXSTANDSTILLSection10.1StandstillSection11.1Section11.2Section11.3Section11.4Section11.5Section11.6Section11.7Section11.8Section11.9Section11.10ARTICLEXIMISCELLANEOUSCertainDefinitionsNotices.DescriptiveHeadings.Counterparts.................EntireAgreement;Assignment.GoverningLaw.SpecificPerformance..........PartiesinInterestSeverability.AlternativeDisputeResolution.
ScheduleBScheduleCScheduleDScheduleEScheduleFScheduleGTransferredAssetsPrinciplesandProceduresforFinalizingtheTransferredAssetScheduleTransitionWorkTaxMattersEmploymentMattersFutureRightsRetainedAssetsExhibitAExhibitBExhibitCExhibitDExhibitEExhibitFExhibitGExhibitHFormofManagementServicesAgreementFormofPowerSupplyAgreementFormofEnergyManagementAgreementFormofGenerationPurchaseRightAgreementGuarantyAgreementFormofParentLiabilitiesUndertakingFormofAuthorityLiabilitiesUndertakingFormofCertificateofDesignation
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AGREEMENTANDPLANOFMERGER(the"Agreement"),datedasofJune26,1997,byandamongBLHOLDINGCORP.,acorporationtobeforinedasaNewYorkcorporationas'ontemplatedherein("Parent"),LONGISLANDLIGHTINGCOMPANY,aNewYorkcorporation("Company"),LONGISLANDPOWER'AUTHORITY,acorporatemunicipalinstrumentalityandpoliticalsubdivisionoftheStateofNewYork("Authority"),andLIPAACQUISITIONCORP.,aNewYorkcorporation("LIPASub").WITNESSETHtWHEREAS,AuthorityisauthorizedundertheLongIslandPowerAuthorityAct,PublicAuthoritiesLawSection1020etseq.(the"Act")toacquireall,oranypartofCompany'ssecuritiesorassets;andWHEREAS,theActconfersuponAuthoritythepowertocondemnthesecuritiesand/orassetsofCompany,includingthecommonstockofCompanytobeacquiredintheproposedtransaction,andAuthorityhaspreviously.publiclyannounceditsintentiontoconsiderexercisingitscondemnationpowertoacquirethecommonstockorassetsofCompanyifanegotiatedtransactioncannotbeachieved;andWHEREAS,TheBrooklynUnionGasCompany,aNewYorkcorporation("BU"),CompanyandParenthaveenteredintoanAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofJune26,1997(the"ExchangeAgreement"),whichprovidesforthe,businesscombinationofBUandCompanyaspeerfirmsandtheformationofParentasaholdingcompanytomanagetheircombinedbusinesses;andWHEREAS,Authority,CompanyandBUhaveundertakennegotiationsastovariousmethodsofaccomplishingtheobjectivessetforthintheActandinconnectionwithsuchnegotiations,thepartieshavereacheddefinitiveagreeinentastothetransactionsdescribedherein;andWHEREAS,theBoardsofDirectorsofCompanyandLIPASubandtheBoardofTrusteesofAuthorityhaveeachdeterininedthatitisadvisableforAuthoritytocauseLIPASub'omergewithandintoCompanyupontheterms'andsubjecttotheconditions,setforthherein;andWHEREAS,infurtheranceofsuch'combination,theBoardsofDirectorsofCompanyandLIPASubandtheBoardofTrusteesofAuthorityhaveeachapprovedthemerger(the"Merger")ofLIPASubwithandintoCompany,inaccordancewiththeapplicableprovisionsoftheNewYorkBusinessCorporationLaw(the"NYBCL"),anduponthetermsandsubjecttotheconditionssetforthherein;NOW,THEREFORE,inconsiderationoftheforegoingandtherespectiverepresentations,warranties,covenants,agreements,andconditionscontainedherein,andintendingtobelegallyboundhereby,thepartiesagreeasfollows:ARTICLEITHEMERGER)RELATEDTRANSACTIONSSection1.1TheMerger.UpontheferinsandsubjecttotheconditionsofthisAgreement,attheEffectiveTime(asdefinedinSection1.3),LIPASubshallbemergedwithandintoCompany(the"Merger")inaccordancewiththelawsoftheStateofNewYork.CompanyshallbethesurvivingcorporationintheMergerandshallcontinueitscorporateexistenceunderthelawsoftheStateofNewYork.CompanyasthesurvivingcorporationaftertheMergerishereinaftersometimesreferredtoasthe"SurvivingCorporation."Section1.2E~jj'ectoftheMerger.AttheEffectiveTime,(i)thecertificateofincorporationoftheCompany,asineffectimmediatelypriortotheEffectiveTime,shallbethecertilicateofincorporationoftheSurvivingCorporationuntilthereafteramendedasprovidedbylawandinsuchcertificateofincorporationand(ii)thebylawsofCompany,asirieffectimmediatelypriortotheEffectiveTime,shallbetheby-lawsoftheSurvivingCorporationuntilthereafteramendedasprovidedbylaw,inthecertificateofincorporationoftheSurvivingCorporationandinsuchby-laws.Subjecttotheforegoing,theadditionaleffectsoftheMergershallbeasprovidedintheapplicableprovisionsoftheNYBCL.D-1 Section1.3EffectiveTimeoftlieMerger.AspromptlyaspracticableafterthesatisfactionorwaiveroftheconditionssetforthinArticleVIIIandtheconsummationofthetransactionscontemplatedby,Section1.4(d),thepartiesheretoshallcausetheMergertobeconsummatedbyfilingacertificateofmergerascontemplatedbythe.NYBCL(the"CertificateofMerger"),togetherwithanyrequiredrelatedcertificates,withtheSecretaryofStateoftheStateofNewYork,insuchformasrequiredby,andexecutedinaccordancewiththerelevantprovisionsof,theNYBCL(thetimeofsuchfilingbeingthe"EffectiveTime").Section1.4RelatedTransactions.InadditiontotheMerger,thefollowingtransactionswillbeconsummatedatorpriortotheClosing(asdefinedbelow):(a)FormationofSubsidiaries.ParentandCompanyshalltakeallnecessaryactiontoformpriortotheClosingsuchsubsidiaries(whichmaybelimitedliabilitycompanies)ofParent(the"TransfereeSubsidiaries")which,atthedirectionofParent,will;asapplicable,(i)enterintoattheClosingamanagementservicesagreementintheformofExhibitAattached.hereto(the"ManagementServicesAgreement"),apowersupplyagreementintheformofExhibitBattachedhereto(the"PowerSupplyAgreement"),anenergymanagementagreementintheformofExhibitCattachedhereto(the"EnergyManagementAgreement"),agenerationpurchaserightagreementintheformofExhibitDattachedhereto(the"GenerationPurcliaseRightAgreement")andaguarantyagreementintheformofExhibitEattachedhereto(the"GuarantyAgreement")and/or(ii)receivetheassetsandpropertiesofCompanysetforthonScheduleAattachedhereto(the"TransferredAssets").Parent,uponwrittennoticetothepartieshereto,maydirectanyportionoftheTransferredAssetstobedistributedtoaparticularTransfereeSubsidiary;provided,however,thattheTransfereeSubsidiarywhichisdesignatedbyParenttoreceivetheassetscontemplatedbytheGenerationPurchaseRightAgreementtobesubjecttoCompany'srightsthereundershallbetheTransfereeSubsidiarythatentersinto,theGenerationPurchaseRightAgreement.(b)Companyshall,reasonablypriortotheanticipatedClosingPate,formanewNewYorkcorporationtoactasParenthereunderandtoown,directlyorindirectly,allofthestockorotherequityinterestsoftheTransfereeSubsidiaries,shallprovideAuthorityandLIPASubwithwrittennoticeofsuchformationandshallcausesuchnewcorporationtoexecuteanddeliveracounterparthereof,whereuponsuchnewcorporationshallbecomeParentforallpurposeshereofandeachotherBasicAgreement(ashereinafterdefined).(c)Companywillusereasonableeffortstotransfertoawholly-ownedsubsidiaryofCompanyitsownershipinterestintheNineMilePointTwoNuclearPowerPlantanditsinterestinallrelatednuclearfuelandnucleardecommissioningtrustfunds("NineMile"),butCompany'sfailuretoobtainanyrequiredconsenttheretoofanygovernmentalagencyorotherownerofanyinterestthereinshallnotconstituteabreachofthisAgreement.(d)(i)ImmediatelypriortotheEffectiveTime,CompanyshalltransfertheTransferredAssetstotheTransfereeSubsidiariesinexchangefor,andParentshalldelivertoCompany,(i)theDesignatedNumber(ashereinafterdefined)ofsharesofthecommonstock,parvalue$0.01pershare,ofParent("ParentCommonStock")and(ii)upto$75,000,090faceamountofParentpreferredstockinanaggregatefaceamountandhavingtherightsandtermstobespecifiedinanoticedeliveredbyParenttoeachpartyheretonotlaterthanthedateonwhichthenoticesofredemptionareissuedpursuanttoSection1.11(the"NewParentPreferredStock").The"DesignatedNumber"shallbethenumberofsharesofParentCommonStockspecifiedinanoticedeliveredbyParenttoeachpartyheretonotlaterthanthedateonwhichsuchnoticesofredemptionareissuedpursuanttoSection1.11andrepresentingParent'sgoodfaithestimateofthenetfairmarketvalueoftheTransferredAssetslessthefaceamountofNewParentPreferredStockdeliveredbyParetitpursuanttothisSection1.4(d).ConcurrentlywithsuchdeliveryandimmediatelypriortotheEffectiveTime,CompanyshallsellforcashinaprivateplacementallsharesofNewParentPreferredStocktooneormorepersonsorentitieswhicharenototherwiseshareholdersofCompanyorBUattlieEffectiveTime.(ii)Notwithstandingclause(i)ofthisSection1.4(d),iftheBUGLILCOTransactions(as.defined,inSection2.1(b))havebeenconsummatedpriortotheEffectiveTime,thetransferoftheTransferredAssetsascontemplatedbysuchclause(i)shallbemadewithoutthedeliverybyParentofanyParentCommonStockorNewParentPreferredStock.D-2 Section1.5DescriptionofAssets.TotheextentthatScheduleAhereto(the"TransferredAssetSchedule")doesnotprovideforafulllegaldescriptionoftheTransferredAssetsreferredtotherein,thepartiesheretoshallrevisetheTransferredAssetSchedulepriortothe,Closinginaccordancewiththe'principlesandproceduressetforthonScheduleBattachedhereto.Section1.6Liabilities(a)AttheClosing,ParentandeachTransfereeSubsidiarywillexecuteanddelivertoAuthorityandSurvivingCorporationaliabilitiesundertakingandindemnificationagreementinsubstantiallytheformofExhibitFattachedhereto(the"ParentLiabilitiesUndertaking").(b)AttheClosing,theAuthorityandtheSurvivingCorporationwillexecuteanddelivertoParentandeachtransfereeSubsidiaryaliabilitiesundertakingandindemnificationagreementinsubstantiallytheformofExhibitGattachedhereto(the"AuthorityLiabilitiesUndertaking").Section1.7Transition1Vork.Thepartiesagreeto'taketherespectiveactionssetforthonScheduleCattachedheretotoprepareforanorderlytransitionundertheBasicAgreementsattheEffectiveTime.Section1.8Resignations.ParentshallcauseeachofficeranddirectorofCompanytoresignfromeachpositionanysuchpersonthenholdswithCompany,effectiveattheEffectiveTime.Section1.9FormationofLIPASub.ReasonablypriortotheanticipatedClosingDate,authorityshallcauseLIPASubtobedulyincorporatedasaNewYorkcorporationandshallcauseLIPASubtoexecuteacounterpartofthisAgreement.EachrepresentationandwarrantysetforthinArticleVwithrespecttoLIPASubshallbedeemedtohavebeenmadeonthedateofsuchexecution.Section1.10CharterAtnendntent:AuthorityshallcausetheAmendedandRestatedCertificateofIncorporationof,CompanytobeamendedascontemplatedintherequestforarulingfromtheInternalRevenueServicewithrespecttoSection115oftheInternalRevenueCodeof1986,asamended(the"Code"),notlaterthanthetenthbusinessdayaftertheEffectiveTime.Section1.11CertainOtherPreferredStock.PromptlyafterallconditionstotheClosingsetforthinArticleVIIIhavebeensatisfiedorwaivedinaccordancetherewith(otherthanSection8.1(b),providedCompanyhas'received-assurancessatisfactorytoCompanythatsuchconditioncanbesatisfied),CompanyshallissuenoticesofredemptionforalloutstandingsharesofCompanyPreferredStock(asdefinedinSection4.3)(otherthantheSeriesAAPreferredStockandtheotherseriesthereofspecificallyreferredtoinSection2.1(c)(iii))andshallpayallamountsdueinrespectofsuchredemptionaspromptlyaspracticableinaccordancewiththeapplicabletermsofCompany'sAmendedandRestatedCertificateofIncorporation.ARTICLEIITREATMENTOFSHARE<SESection2.1EffectoftheMergeronCapitalStockAttheEffectiveTime,byvirtueoftheMergerand~withoutanyactiononthepartofanyholderofanycapitalstockofParent,CompanyorLIPASub:(a)CancellationofCertainStock.(i)EachshareofCompanyCommonStockandeachshareofCompanyPreferredStockthatisownedbyCompanyastreasurystock,andeachshareofCompanyPreferredStockownedbyanydirectorindirectwhollyownedSubsidiary(asdefinedinSection4.1)ofParentimmediatelypriortotheEffectiveTimeshall,byvirtueoftheMergerandwithoutanyactiononthepartoftheholderthereof,ceasetobeoutstanding,becancelledandretiredwithoutpaymentofanyconsiderationthereforandceasetoexist.(ii)EachshareofthecommonstockofLIPASub,byvirtueoftheMergerandwithoutanyactiononthepartoftheholderthereof,shallbecancelledandconvertedintotherighttoreceiveonefullypaidand,subjecttoSection630oftheNYBCL,non-assessableshareofcommonstockoftheSurvivingCorporation.D-3 (b)Treat>>ie>>tofCompanyConvnonStock.(i)EachissuedandoutstandingshareofCompanyCommonStock,otherthansharescancelledpursuanttoSection2.1(a)andCompanyDissentingShares(asdefinedinSection,2.2),shallbecancelledandconvertedintotherighttoreceive(x)anamountofcashequaltotheCashPurchasePrice(asdefinedinSection2.1(d)(i))dividedbythenumberofsharesofCompanyCommonStockoutstandingontheClosingDate(the"CommonStockConversionAmount")and(y)anumberofsharesofParentCommonStock(the"TransferredAssetsStock'Portion")equalto"thenumberofsharesofParentCommonStockreceivedbyCompanypursuanttoclause(i)ofSection1.4(d)dividedbythenumberofsharesofCompanyCommonStockoutstandingontheClosingDate.EachholderofanysuchshareofCompanyCommonStockshallbedeemedherebytohaveappointedtheExchangeAgent(asdefinedinSection2.3(a))asitsagenttosubscribeforsharesofParentCommonStockbyapplyingtheaggregateCommonStockConversionAmountforsuchpurchase.Thenumberofsharesof'ParentCommonStocktobepurchasedfortheCommon.StockConversionAmountshallbe(x)0.880sharesofParentCommonStocklesstheTransferredAssetsStockPortionifthetransactionscontemplatedbytheExchangeAgreement(the"BUGLILCOTransactions")willbeconsummatedcontemporaneouslywiththetransactionscontemplatedherebyor(y)oneshareofParentCommonStocklesstheTransferredAssetsStockPortioniftheBUGLILCOTransactionswillnotbeconsummatedcontemporaneouslywiththetransactionscontemplatedhereby.Uponsuchcancellation,allsuchsharesofCompanyCommonStockshallceasetoexist,andeachholderofacertificateformerlyrepresentinganysuchsharesshallceasetohaveanyrightswithrespectthereto,excepttherighttoreceiveParentCommonStockpurchasedpursuanttothesecondsentenceofthisSection2.1(b)anddistributedpursuanttoclause(y)ofthefirstsentenceofthisSection2.1(b).(ii)Notwithstandingclause(i)ofthisSection2.1(b),iftheBUGLILCOTransactions,havebeenconsummatedpriortotheEffectiveTime,eachissuedandoutstandingsliareofCompanyCommonStock,shallbecancelledandconvertedintotherighttoreceiveonlyanamountofcashequaltotheCommonStockConversionAmountandthetransactionscontemplatedbythesecon'dandthirdsentencesofsuchclause(i)shallnotoccur.(c)Treat>>rentofCoaipanyPreferredStock.(i)Eachiss'uedandoutstandingshareofSeriesAAPreferredStockotherthansharescancelledpursuanttoSection2.1(a)andCompanyDissentingSharesshallbecancelledandconvertedintotherighttoreceiveonefullypaidand,subjecttoSection630oftheNYBCL,non-assessableshareofpreferredstock,parvalue$25pershare,ofParent("ParentPreferredStock")withidenticalrights(includingdividendrates)anddesignations.totheSeriesAAPreferredStock,assetforthintheCertificateofDesignationattachedheretoasExhibitH.Uponsuchconversion,eachho[derofacertificateformerlyrepresentinganysharesofSeriesAAPreferredStockshallceasetohaveanyrightswithrespectthereto,excepttherighttoreceivethesharesofParentPreferredStockinconsiderationthereforuponthesurrenderofsuchcertificateinaccordancewithSection2.3.(ii)EachissuedandoutstandingshareofCompanyPreferredStockthatissubjecttooptionalredemptionbyCompanyatorbeforetheClosingDate(otherthansharescancelledpursuanttoSection2.1(a)(collectively,"RedeemablePreferredStock.")shallbecalledforredemptionbyCompanyasprovidedinSection1.11andallsuchsharesshallberedeemedforcashbyCompanyinaccordancewiththetermsapplicabletosuchshares.TheaggregateamountofaccruedbutunpaiddividendsandredemptionpremiumspayablebyCompanyinrespectofsuchredemptions(the"AggregateRedemptionPremium")shallbepaidbyParenttoCompanynotlaterthantwobusinessdayspriortothedatetlieapplicableredemptionpriceispayable.(iii)EachissuedandoutstandingshaieofCompanyPreferredStock(otherthansharescancelledpursuanttoSection2.1(a),CompanyDissentingShares,sharesofSeriesAAPreferredSt'ockandRedeemablePreferredStock)(collectively,,"NonredeemablePreferredStock")shallbecancelledandconvertedintotherighttoreceivecashintheamountofthesumof(x)theMake-WholeAniount(ashereinafterdefined)and(y)accruedbutunpaiddividendsinrespectofsuchsharethroughtheClosingDate.Asusedherein,"Make-WholeAmount"withrespecttoeachshareofNonredeemablePreferredStockmeansanamount,equaltothepresentvalueof(A)thefaceorliquidationpreferenceamount,whicheverisapplicable,ofsuchshareand(B)theremainingdividendpaymentsdueonsuchsharebetweentheClosingD-4 DateandtheearliestdateonwhichCompanymayredeemsuchshare,computedusingadiscountrateequaltotheapplicableFairMarketRatedividedby0.95."FairMarketRate"isdefinedastheGenericGeneralObligationFairMarketYieldforBaaratedLow/MediumCouponGeneralMunicipalObligationsatthetimeofthecomputationasreportedonBloomberg,with'amaturitymostnearlyequaltotheperiodbetweencancellationandfinalredemptionofsuchseriesofNon-redeemablePreferredStock.Theperiodbetween-cancellationandredemptionreferstotheperiodbetweentheClosingDatean'd:(A)August1,2002,withrespecttotheSe'riesCCPreferredStock,(B)March1,1999,withrespecttotheSeriesGGPreferredStock,I'C)May1,2001,withrespecttotheSeriesQQPreferredStock,and(D)October16,2018,withrespecttotheSeriesUUPreferredStock.Theamountbywhich'heaggregateamountpayablepursuanttothisSection2.1(c)(iii)exceeds'00fooftheaggregatefaceorliquidationpreferenceamounts,whicheverisapplicable,forallsharesofNonredeemablePreferredStockshallbepaidbyParent:totheSurvivingCorporationattheEffectiveTime.(d)CashPiirchasePrice;Adjusrinenr.(i)The,,"CashPurchasePrice"tobepaidbyAuthorityshallbe$2,497,500,000.(ii)TheCashPurchasePricehasbeendeterminedbaseduponthenetbookvalueoftheRetainedAssets(asdefinedinSection4.4(b))of$2,500,800,000assetforthinthe,proformaconsolidatedbalancesheetofCompanyasofDecember31,1997preparedbyCompany(the"ProFormaBalanceSheet").TheCashPurchasePriceisbasedupontheassumptionthatthetotallong-termindebtednessofCompanyontheClosingDateshallnotexceed$3,576,000,000(the"RetainedDebtAmount").TheRetain'edDebtAmountshallbeadjustedinaccordancewiththeadjustmentreferredtoinSection2.1(d)(vi).(the"Adjustment").(iii)Nolaterthan60daysaftertheClosingDate,ParentshallprepareanddelivertoAuthority,withacopytoAuthority'sindependentaccountants,PriceWaterhouseLLP("PriceWaterhouse"),theauditedconsolidatedbalancesheetofCompanyasoftheClosingDate(the"ClosingDateBalanceSheet")andastatement,asoftheClosingDate(the"Statement"),settingforththeainountoftheAdjustmentandthecalculationsthereofinreasonabledetailandshowingthedifferencesbetweeneachaccountcontainedintheProFormaBalanceSheetandthecorrespondingaccountintheClosingDateBalanceSheet.TheClosingDateBalanceSheetandtheStatementshallbepreparedinaccordancewithgenerallyacceptedaccountingprinciplesusedbyCompanyinthepreparationofitsfinancialstatementsfortheyearendedDecember31,1996("GAAP"),usingallocationproceduresconsistentwiththeproceduresusedbyCompanytopreparetheProFormaBalanceSheetanditsauditedhistoricalfinancialstatements.DuringtheperiodrequiredtopreparetheClosingDateBalanceSheet,SurvivingCorporation.willmakeavailablethebooksandrecordsofSurvivingCorporationtoParent,itsauthorizedrepresentativesandParent.'sindependentauditors,Ernst&Young("E&Y.").(iv)Duringthe60-dayperiodfollowingreceiptbyAuthorityoftheClosingDateBalanceSheetandtheStatement,ParentshallmakeavailableandshalldirectE&YtomakeavailabletoAuthorityandPriceWaterhousecopiesoftheworkingpapers,booksandrecordsusedinthepreparationoftheClosingDateBalanceSheetandtheStatement,asreasonablyrequestedbyAutliority.TheClosingDateBalanceSheetandtheStatementshallbecomefinalandbindinguponthepartiesatthecloseofbusinessonthesixtiethdayfollowingreceiptthereofbyAuthority,excepttothe.extentthatAuthoritygiveswrittennoticeofitsdisagreementwiththeClosingDateBalanceSheetortheStatement("NoticeofDisagreement")toParentpriortosuchdate,orifsuchdayisnotabusinessday,thenextfollowingbusinessday.AnyNoticeofDisagreementshallspecifyinreasonabledetailthenatureofanydisagreementsoasserted.(v)Duringthe30-dayperiodfollowingthedeliveryofaNoticeofDisagreement,ParentandAuthorityshallseekingoodfaithtoresolveinwritinganydifferenceswhichtheymayhavewithrespecttothemattersspecified'mtheNoticeofDisagreement.Duringsuchperiod,'ParentandE&YshallhaveaccesstotheworkingpapersofPriceWaterhousepreparedinconnectionwiththeiranalysisofanymatterspecifiedintheNoticeofDisagreement,asreasonablyrequestedbyParent,andAuthorityandPriceWaterhouseshallhaveaccesstotheworkingpapersofE&YpreparedinconnectionwiththeClosingDateBalanceSheetandtheStatement,asre'asonablyrequestedbyAuthority.Attheendofsuch30-dayperiod,ParentandAuthorityD-5 shallsubmittoanindependentaccountingfirm(the"AccountingFirm")forreviewandresolutionofanyandallmatterswhichremainindisputeandwhichwereincludedintheNoticeofDisagreement.TheAccountingFirmshallbeKPMGPeatMarwickor,ifsuchfirmisunableorunwillingtoact,suchothernationallyrecognizedindependentpublicaccountingfirmasshallbeagreeduponbyParentandAuthorityinwriting.IfParentandAuthoritydonotagreeontheselectionofanationallyrecognizedindependentaccountingfirm,PriceWaterhouseandE&YshallselectathirdaccountingfirmtoactastheAccountingFirmhereunder.TheAdjustmentasdeterminedbyParent,asmodified(ifatall)byresolutionofParentandAuthorityorbytheAccountingFirm,isreferredtohereinasthe"FinalAdjustment."ThedeterminationoftheAccountingFirmastosuchmattersshallbefinalandbindingonthepartieshereto,andParentandAuthorityagreethatjudgmentmaybeentereduponthedeterminationoftheAccountingFirminanycourthavingjurisdictionoverthepartyagainstwhichsuchdeterminationistobeenforced.ThefeesandexpensesoftheAccountingFirmincurredpursuanttothisSection2.1(d)(v)shallbebornebyParentandAuthorityininverseproportionastheymayprevailonmattersre'solvedbytheAccountingFirm,whichproportionateallocationsshallalsobedeterminedbytheAccountingFirmatthetimethedeterminationoftheAccounting~Firmisrenderedonthemeritsofthematterssubmitted.ThefeesanddisbursementsofE&YincurredinconnectionwiththeircertificationoftheClosingDateBalanceSheetandtheStatementandreviewofanyNoticeofDisagreementshallbebornebyParentandthefeesanddisbursementsofPriceWaterhouseincurredinconnectionwiththeirreviewoftheClosingDateBalanceSheet,andtheStatementshallbebornebySurvivingCorporationorAuthority."(vi)TheRetainedDebtAmountshallbe(A)increasedbytheamount,ifany,bywhichthenetbookvalueoftheRetainedAssetsexceeds$2,500,800,000or(B)decreasedbytheamount,ifany,bywhichthenetbookvalueoftheRetainedAssetsislessthan$2,500,800,000.(vii)TheTransferredAssetsshallincludeallcashheldbyCompanyatthe'ClosingexceptforthenetproceedsofthesaleofNewParentPreferredStock.Theaccountspayable'retainedbyCompanyimmediatelyfollowingtheClosingshallbe$101.7millionplusorminustheNewParentPreferredStockAdjustmentashereinafterdefined.TotheextentthattheamountofsuchnetproceedsfromthesaleoftheNewParentPreferredStockismore(the"Excess")orlessthan$75million(the"Shortfall")theaccountspayableretainedbytheCompanyimmediatelyfollowing.theClosingshallbeincreasedordecreasedbytheamountoftheExcessorShortfall,respectively,(the"NewParentPreferredStockAgreement").(e)RetainedDebt.,AttheClosing,ParentshallexecuteanddeliverandshallcauseeachTransfereeSubsidiarytoexecuteanddeliver,toCompanysuchpromissorynotesasshallhaveanaggregateprincipalamountequaltotheexcess,ifany,of(i)theindebtednessofCompanyoutstandingontheClosingDate(the"ClosingDateDebtAmount")over(ii)theRetainedDebtAmountandasshallhavesuchratesandmaturities(including,withoutlimitation,acceleratedmaturitiesresultingfromdefaultandvoluntaryandmandatoryprepayments)asshallcorrespond,toeachportionofdebtunderlyingtheindebtednessofCompanyontheClosingDate(the"PromissoryNotes");provided,however,thatsuchinterestandprincipalpaymentdatesshallbeadjustedtorequirepaymentbyParent,30dayspriortothecorrespondingpaymentdatesontheunderlyingdebt,ofanamountwhich,includingamountsassuredtobeearnedbyAuthoritywhilesuchfundsareheldbyit,willbesufficienttomakethecorrespondingpayments.TheaggregateexcessprincipalamountshallbeallocatedtoeachPromissoryNoteonaproratabasissuchthattheratioof(x)theprincipalamountofeachPromissoryNoteto(y)theaggregateexcessprincipalamountshallcorrespondtotheratioof(A)theprincipalamountofthecorrespondingunderlyingportionofdebtto(B)theClosingDateDebtAmount.TheClosingDateDebtAmountshall,forthepurposeofcalculatingtheaggregateprincipalamountofsuchPromissoryNotes,betheamountsetforthinacertificatesignedbytheChiefFinancialOfficerofCompanyanddeliveredtoParentandAuthorityontheClosingDate.SuchamountshallbereviewedbyE&YinaccordancewithSection2.1(d)(iii)andtheactualamountthereofshallbesetforthintheStatement.TheactualamountshallbesubjecttoreviewbyPriceWaterhouse,inaccordancewith'theproceduressetforthinSection2.1(d)(iv),withanydisagreementsbeingresolvedinaccordancewiththeproceduressetforthinSection2.1(d)(v).Uponthe.finaldeterminationofsuchamount,thePromissoryNotes-shallbeadjustedonaproratabasistoreflecttheprincipalamountsodetermined.D-6 (f)CreditRating.(i)If,atanytimewhenanyPromissoryNotesareoutstanding,aMaterialDeclineinParent'sCreditStanding(asdefinedbelow)occurs,then,within10daysaftersuchoccurrence,ParentshallprovidecreditenhancementofthePromissoryNoteshereunderatitssolecostandexpenseintheformofaletterofcreditsecuringthePromissoryNoteshereunderinafaceamountequaltotheaggregateoutstandingbalancesofthePromissoryNotes,issuedbyafinancialinstitutionwhoselong-termseniordebtisorwouldberated"A",orbetterbyatleasttwonationallyrecognizedratingservices.(ii)ForpurposesofthisSection,a"MaterialDeclineinParent'sCreditStanding"shallbedeemedto"haveoccurredif(1)Parenthaslong-termseniordebtoutstandingwhichisratedbyanationally-recognizedratingserviceandParent'slong-termseniordebtoutstandingisnotratedat'least"A"bytwoormo'esuchratingservices,or(2).inthesolereasonableopinionoftheAuthority,intheeventthatParentdoesnothavelong-termseniordebtoutstandingorsuchdebtisnotratedbyatleasttwonationallyrecognizedratingservices,orthecreditstandingofParentdeclinestoalevelwhichisinsufficienttosupportatleastan"A'"creditratingbytwoormorenationallyrecognizedratingservices,whetherornotanysuchdebtisoutstanding.ParentshallimmediatelynotifytheAuthorityofanyMaterialDeclinein,Parent'sCreditStanding.(iii)UpontheoccurrenceofaMaterialDeclineinParent'sCreditStanding,ParentshallhavetherighttoeconomicallydefeasethePromissoryNotes,bydeliveringtoAuthorityU.S.treasurysecuritiesofsuchmaturities,andinsuchprincipalamountsasshallbesufficient,asreasonablydeterminedbyAuthority,to,producecashatthetimesandintheamountsrequiredtopayallamountsdueinrespectoftheindebtednessunderlyingthePromissoryNotes.(g)TreatmentofDebtatClosing.(i)Thepartiesshallcooperatewitheachothertoeffectrefinancings,repayments,amendmentsofCompany'soutstandingindebtednessandotherrelatedtransactionswiththeintentionofminimizingtheaggregateprincipalamountofthePromissoryNotesandmaximizingtheamountofCompany'stax-exemptindebtednessattheEffectiveTime.t(ii)NopartyshallberequiredbythisSection2.1(g)toeffectanytransactionthatitreasonablydetertninestobefinanciallyadversetoitby'comparisontothetransactionscontemplatedbySection2.'1(e).(h)AssumptionofCertainDebt.Subjecttoobtainingallrequiredconsents,ParentwillassumeatClosing(i)the7.3%DebenturesdueJuly15,1999,withanapproxiniateaggregateprincipalamountcurrentlyoutstandingof$397millionand(ii)the8.20%DebenturesdueMarch15,2023,withanapproximateaggregateprincipalamountcurrentlyoutstandingof$270million.CertainothertaxexemptauthorityfinancingnoteswillbeidentifiedbythepartiesandassumedbyParent(subjecttoobtainingallrequiredconsentsandtotheparties'axcounsel'sconcurrence).(i)AccountsReceivableandAccruedUnbilledRevenues.Parentwillbeentitledto/responsibleforanyover/undercollectioninexcessof$500,000oftheretainedcustomeraccountsreceivableandaccruedunbilledrevenuesontheClosingDateBalanceSheet.PriortotheClosingDate,thepartieswilldevelopamutuallyagreeduponmethodologythatwillmeasuresuchcollections.Section2.2DissentingShares.SharesofCommonStock,SeriesAAPreferredStockorNonredeemablePreferredStockheldbyanyholderentitledtoreliefasadissentingshareholderunderSection910oftheNYBCL(the"CompanyDissentingShares")shallnotbecometherighttoreceivetheCommonStockConversionAmountincash(inthecaseofanysuchshareofCompanyCommonStock),ParentPreferredStock(inthecaseofanysuchshareofSeriesAAPreferredStock)oranycashamountpayablepursuanttoSection2.1(c)(iii)(inthecaseofanysuchshareofNonredeemablePreferredStock),butshallbecancelledandconvertedintosuchconsiderationasmaybeduewithrespecttosuchsharespursuanttotheapplicablepro'visionsoftheNYBCL,unlessanduntiltherightofsuchholdertorec'eivefaircashvalueforsuchCompanyDissentingSharesterminatesinaccordancewithSection623oftheNYBCL.IfsuchrightisterminatedotherwisethanbythepurchaseofsuchsharesbyCompanyorLIPASub,thensuchsharesshallceasetobeCompanyDissentingSharesandshallrepresenttherighttoreceivetheCommonStockConversionAmountincash(inthecaseoftanysuchshareofCompanyCommonStock),ParentPreferredStock(inthecaseofanysuchshareofSeriesAAPreferredStock)oranycashamountpayablepursuanttoSection2.1(c)(iii)(inthecaseofanysuch'hareofNonredeemablePreferredStock).D-7 Section2.3IssuanceofParentShares.~,(a)DepositwithExchangeAgent.AssoonaspracticableaftertheEffectiveTime,Parentshalldepositwithsuchbank'ortrustcorn'panyasshallhavebe'enmutuallyagreeabletoCompanyandAuthoritypriortotheEffectiveTime(the"ExchangeAgent"),certificatesrepresentingParentSharesrequiredtoeffecttheissuancesreferredtoinSection2.1(b)andSection2.1(c)(i).IfCompanyandAuthorityshallnothaveagreedontheExchangeAgentpriortotheEffectiveTime,thebankortrustcompanythenservingasregistrarandtransfer"agentfortheSeriesAAPreferredStockshallbeselectedtoactasExchangeAgentfortheSeriesAAPreferredStock.ThesharesofParentCommonStocksubscribedforbytheExchangeAgentasagentfortheholdersofCompanyCommonStockpursuanttoSection2.1(b)andthesharesofParentCommonStockconstitutingtheTransferredAssetsStockPortion,togetherwiththesharesofParentPreferredStockforwhichthesharesofSeriesAAPreferredStockaretobeexchangedpursuanttoSection2.1(c)(i),arereferredtohereincollectivelyasthe"ParentShares."(b)ProceduresforIssuanceofParentShares.AssoonaspracticableaftertheEffectiveTime,theExchange"'Agentshallmailtoeachholderofrecordofacertificateorcertificates'(the."Certificates")whichimmediatelypriortotheEffectiveTimerepresentedoutstandingsharesofSeriesAAPreferredStockorCompanyCommonStock,asapplicable(the"CancelledShares")thatwerecancelledandbecameinstead,directlyorindirectly,therighttoreceivetheapplicableParentShares,(i)aletteroftransmittal(whichshallspecifythatdeliveryshallbeeffected,andriskoflossandtitletotheCertificatesshallpass,'onlyuponactualdeliveryoftheCertificatestotheExchangeAgent)and(ii)instructionsforuseineffectingthesurrenderoftheCertificatesinexchangeforcertificatesrepresentingParentShares.UponsurrenderofaCertificatetotheExchangeAgentforcancellation(ortosuchotheragentoragentsasmaybeappointedbyagreementofCompanyandAuthority),togetherwithadulyexecutedletteroftransmittalandsuchotherdocumentsastheExchangeAgentshallrequire,theholderofsuchCertificateshallbeentitledtoreceiveacertificaterepresentingthatnumberofParentShareswhichsuchholderhastherighttoreceivepursuanttotheprovisionsofthisArticleII.IntheeventofatransferofownershipofCancelledShareswhichisnotregisteredinthetransferrecordsofCompanyacertificaterepresentingthepropernumberofParentSharesmaybeissuedtoatransfereeiftheCertificaterepresentingsuchCancelledSharesispresentedtotheExchangeAgent,accompaniedbyalldocumentsrequiredtoevidenceandeffectsuchtransferandbyevidencesatisfactorytotheExchangeAgentthatanyapplicablestocktransfertaxeshavebeenpaid.UntilsurrenderedascontemplatedbythisSection2.3,eachCertificateshallbedeemedatanytimeaftertheEffectiveTimetorepresentonlytherighttoreceiveuponsuchsurrenderthecertificaterepresentingParentSharesascontemplatedbythisSection2.3.(c)DistributiottswithrespecttoUnsurrenderedShares.NodividendsorotherdistributionsdeclaredormadeaftertheEffectiveTimeivithrespecttotheParentShareswitharecorddateaftertheEffectiveTimeshallbepaidtotheholderofanyunsurrenderedCertificatewithrespecttotheParentSharesrepresentedtherebyuntiltheholderofrecordofsuchCertificateshallsurrendersuchCertificate.Subjecttotheeffectofunclaimedproperty,escheatandotlierapplicablelaws,followingsurrenderofanysuchCertificate,thereshallbepaidtotherecordholderofthecertificatesrepresentingParentSharesissuedinconsiderationtherefor,withoutinterest,(i)atthetimeofsuchsurrender,theamountofdividendsorotherdistributionswitharecorddateaftertheEffectiveTimetheretoforepaidwithrespecttosuchParentSharesand(ii)attheappropriatepaymentdate,theamountofdividehdsorotherdistributionswitharecorddateaftertheEffectiveTimebutpriortosurrenderandapaymentdatesubsequenttosurrenderpayablewithres'pecttosuchParentShares.(d)ClosingofTransferBoo~.FromandaftertheEffectiveTime,thestocktransferbookoftheCompanyshallbeclosedandnotransferofanycapitalstockoftheCompanyshallthereafterbemade.If,aftertheEffectiveTime,CertificatesarepresentedtotheCompany,they.sliallbecancelledandexchangedforcertificatesrepresentingtheappropriatenumberofParentShares,asprovidedinthisSection2.3,(e)TerminationofExchangeAgent.AnycertificatesrepresentingParentSharesdepositedwiththeExchangeAgentpursuanttoSection2.3(a)andnotexchangedwithinoneyearafter'hcEffectiveTimepursuanttothisSection2.3shallbereturnedbytheExchangeAgenttoParent,whichshallthereafteractasExchangeAgent:Parentshallnotbeliabletoanypersonforsuchsharesdeliveredtoapublicofficialpursuanttoanyapplicableabandonedproperty,escheatorsimilarlaw.D-8 ARTICLE<IIICLOSINGSection3.1Closing.UponthetcrtnsandsubjecttotheconditionsofthisAgreement,theconsummationofthetransactionscontemplatedbythisAgreement(the"Closing")willtakeplaceonthesecondbusinessdayfollowingtheredemptionofallseriesofCompanyPreferredStockcontemplatedtoberedeemedpursuanttoSection1.11at10:00a.m.,atsuchplaceonLongIslandorothertimeasshallbeagreeduponbytheparties.ThedateonwhichtheClosingoccursisreferredtohereinasthe"ClosingDate."ARTICLEIVREPRESE<NTATIONSANDWARRANTIESOFPARENTANDCOMPANYEachofParentandCompanyherebyrepresentsandwarrantstoAuthorityandLIPASubasfollows:Section4.1OrganizationandQualification.ExceptascontemplatedbySection1.4,assetforthinSection4.1oftheParentDisclosureSchedule(asdefinedinSection7.4),eachofParentCompanyandeachoftheCompanySubsidiaries(asdefinedbelow)isacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionofincorporationororganization,hasallrequisitecorporatepowerandauthority,andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetsandpropertiestotheextentowned,.leasedandoperatedandtocarryonitsbusinessasitisnowbeingconductedandisdulyqualifiedandingoodstandingtodobusinessineachjurisdictioninwhichthenatureofitsbusinessortheownershiporleasingofitsassetsandpropertiesmakessuchqualificationnecessary.AsusedinthisAgreement,(a)theterm"Subsidiary"ofapersonshallmeananycorporationorotherentity(includingpartnerships,limitedliabilitycompaniesandotherbusinessassociations)ofwhichatleastamajorityoftheoutstandingcapitalstockorothervotingsecuritieshavingvotingpowerunderordinarycircumstancestoelectdirectorsorsimilarmembersofthegoverningbodyofsuchcorporation,orentityshallatthetimebeheld,directlyorindirectly,bysuchpersonand(b)theterm"CompanySubsidiary"shallmeanaSubsidiaryofCompany.Section4.2Subsidiaries.Section4.2oftheParentDisclosureSchedulesetsforthadescriptionasofthedatehereofofallCompanySubsidiariesandJointVenturesofCompany("CompanyJointVentures"),including(a)thenameofeachsuchentityandCompany'sinteresttherein,and(b)abriefdescriptionoftheprincipallineorlinesofbusinessconductedbyeachsuchentity.ExceptassetforthinSection4.2oftheParentDisclosureSchedule,noneofCompanySubsidiariesisa"publicutilitycompany",a"holdingcompany",a"subsidiarycompany"oran"affiliate"ofanypublicutilitycompanywithinthemeaningofSection2(a)(5),2(a)(7),2(a)(8)or2(a)(11)ofthePublicUtilityHoldingCompanyActof1935(the"1935Act"),respectively.ExceptassetforthinSection4.2oftheParentDisclosureSchedule,alloftheissuedandoutstandingsharesofcapitalstockofCompanyandofeachCompanySubsidiaryarevalidlyissued,fullypaid,nonassessableandfreeofpreemptiverights,and,asoftheClosingDate,willbeowneddirectlyorindirectlybyParentfreeandclearofanyliens,claims,encumbrances,securityinterests,equities,cliargesandoptionsofanynaturewhatsoeverandtherearenooutstandingsubscriptions;options,calls,contracts,voting,trusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatinganysuchCompanySubsidiarytoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofitscapitalstockorobligatingittogrant,extendorenterintoanysuchagreementorcommitment.AsusedinthisAgreement,(a)theterm"JointVenture"ofapersonshallmeananycorporationorotherentity(includingpartnershipsandotherbusinessassociations)thatisnotaSubsidiaryofsuchperson,inwhichsuchpersonoroneormoreofitsSubsidiariesownsanequityinterestand(b)theterm"CompanyJointVenture"-shallmeanthoseofthejointventuresofCompanyoranyCompanySubsidiaryidentifiedasaCompanyJointVentureinSection4.2oftheParentDisclosureSchedule.Section4.3Capitalization.TheauthorizedcapitalstockofCompanyisassetforthintheTransitionReportonFortn10-Qforthetransitionperiod'fromJanuary1,1997toMarch31,1997.Thenumberofissuedandoutstandingsharesofcommonstock,parvalue$5pershare,ofCompany("CompanyCommonStock")D-9 andpreferredstockofCompany(the"CompanyPreferredStock"),andeachseriesthereof,asofDecember31,1996,areassetforthinCompany'sAnnualReportonForm10kfortheyearendedDecember31,1996,andCompanyhasneitherissued,sold,redeemedorrepurchasedanysharesofCompanyPreferredStocksinceDecember31,1996.AlloftheissuedandoutstandingsharesofthecapitalstockofCompanyarevalidlyissued,fullypaid,nonassessable(subjecttoSection630oftheNYBCL)andfreeofpreemptiverights.ExceptassetforthinSection4.3oftheParentDisclosureSchedule,asofthedatehereof,therearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesor'thercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexcha'ngeunderanyoutstandingsecurity,instrumentorotheragreement,obligatingParent,CompanyoranyoftheCompanySubsidiariestoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofthecapitalstockofCompany,orobligatingParenttogrant,extendorenterintoanysuchagreement'orcommitment.TherearenooutstandingstockappreciationrightsofCompanywhichwerenotgrantedintandemwitharelatedstockoptionandnooutstandinglimitedstockappreciationrightsorotherrightstoredeemforcashoptionsorwarrantsofCompany.hSection4.4Authority;Non-Contravention;StattttoryApprovals;Compliance.(a)Authonty.EachofParent'andCompanyhasallrequisitepowerandauthoritytoenterintoeachofthisAgreement,theManagementServicesAgreement,thePowerSupplyAgreement,theEnergyManagementAgreement,theGenerationPurchaseRightAgreement,theGuarantyAgreement,theParentLiabilitiesUndertaking,theAuthority'iabilitiesUndertakingandthePromissoryNotes(collectively,the"BasicAgreements")towhichitisaparty,and,subjecttotheParentRequiredStatutoryApprovals(asdefinedinSection4.4(c)),toconsummatethetransactionscontemplatedherebyandthereby.EachoftheapplicableTransfereeSubsidiarieswill,attheEffectiveTime,haveallrequisitepowerandauthoritytoenterintoeachoftheBasicAgreementstowhichitisaparty,and,subjecttotheParentRequiredStatutoryApprovals,toconsummatethetransactionscontemplatedthereby.TheexecutionanddeliveryofeachoftheBasicAgreementstowhichParentorCompanyisapartyandtheconsummationbyParentandCompanyofthetransactionscontemplatedherebyandtherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofParentandCompany,otherthantheCompanyShareholderApproval(asdefinedinSection4.11).Theexecutionand'deliveryofeachoftlieBasicAgreementstowhichtheapplicableTransfereeSubsidiariesareapartyandtheconsummationofthetransactionscontemplatedtherebywill,attheEffectiveTime,bedulyauthorizedbyallnecessarycorporateactiononthepartofsuchTransfereeSubsidiaries.ThisAgreementhasbeendulyandvalidlyexecutedanddeliveredbyParentandCompanyand,assumingthedueauthorization,executionanddeliveryhereofbytheothersignatorieshereto(otherthanLIPASub),constitutesthevalidandbindingobligationofParentandCompany,enforceableagainsteachoftheminaccordancewithitsterms.(b)Non-Contravention.ExceptassetforthinSection4.4(b)oftheParentDisclosureSchedule,theexecutionanddeliveryofthisAgreementbyParentandCompanyandeachoftheotherBasicAgreementstowhichParentorCompanyisapartydoesnot,andtheconsummationofthetransactionscontemplatedherebyandtherebywillnot,inanymaterialrespect,violate,conflictwith,orresultinamaterialbreachofanyprovisionof,orconstituteamaterialdefault(withorwithoutnoticeorlapseoftimeorboth)under,orresultintheterminationormodificationof,oracceleratetheperformancerequiredby,orresultina'rightoftermination,cancellation,oraccelerationofanyobligationorthelossofamaterialbenefitunder,orresultinthecreationofanymateriallien,securityinterest,chargeorencumbranceuponanyofthepropertiesorassetscontemplatedherebytobeownedattheEffectiveTime(x)byCompanyor(y)byanyCompanySubsidiaryorCompanyJointVenturesnotconstitutingaportionoftheTransferred,Assets(collectively,andasdescribedinScheduleG,the"RetainedAssets")(anysuchviolation,conflict,breach,default,rightoftermination,modification,cancellationoracceleration,lossorcreation,a"Violation"withrespecttoParent,CompanyoranyCompanySubsidiaries,suchtermwhenusedinArticleVhavingacorrelativemeaningwithrespecttoAuthorityandLIPASub)pursuanttoanyprovisionsof(i)thecertificateofincorporation,by-lawsorsimilargoverningdocumentsofParent,CompanyoranyoftheCompanySubsidiariesortheCompanyJointVentures,(ii)subjecttoobtainingtheParentRequiredStatutoryApprovalsandthereceiptoftheCompanyShareholderApproval,anystatute,law,ordinance,rule,regulation,judgment,decree,order,injunction,"writ,permitorlicenseofanyGovernmentalAuthority(asdefinedinSection4.4(c))applicabletoParentorCompanyoranyoftheCompanySubsidiariesor
'the'CompanyJointVenturesoranyRetainedAssetor(iii)subjecttoobtainingthethird-partyconsentssetforthinSection4.4(b)oftheParentDisclosureSchedule(the"ParentRequiredConsents"),anymaterialnote,bond,mortgage,indenture,deedoftrust,license,franchise,permit,concession,contract,leaseorotherinstrument,obligation'oragreementofanykindtowhichParentorCompanyoranyoftheCompanySubsidiariesortheCompanyJointVenturesisapartyorbywhichanyRetainedAssetmaybeboundoraffected.(c)StatutoryApprovals.Nodeclaration,filingorregistrationwith,ornoticetoorauthorization,consentorapprov'alof,anycourt,federal,state,localorforeigngovernmentalorregulatorybody(includingastockexchangeorotherself-regulatorybody)orauthority(eacha"GovernmentalAuthority")isnecessaryfortheexecutionanddeliveryofthisAgreementbyParentandCompanyandeachoftheotherBasicAgreementstowhichParent,CompanyoraTransfereeSubsidiaryisapartyortheconsummationbyParent,CompanyandtheTransfereeSubsidiariesofthetransactionscontemplatedherebyandthereby,exceptasdescribedinSection4.4(c)oftheParentDisclosureSchedule(the"ParentRequiredStatutoryApprovals,"itbeingunderstoodthatreferencesinthisAgreementtoi'obtaining"suchParentRequiredStatutoryApprovalsshallmeanmakingsuchdeclarations,filingsorregistrations;givingsuchnotices;obtainingsuchauthorizations,consentsorapprovals;andhavingsuchwaitingperiods'expireasarenecessarytoavoidaviolationoflaw).(d)Compliance.ExceptassetforthinSection4.4(d)orSection4.9oftheParentDisclosureSchedule,ScheduleD(TaxMatters)orScheduleE(EmploymentMatters)hereto,orasdisclosedintheParentSECReports(asdefinedinSection4.5)filedpriortothedatehereof(i)neitherParent,CompanynoranyoftheCompanySubsidiariesnor,totheknowledgeofParentorCompany,anyCompanyJointVentureis,withrespecttoanyRetainedAsset,inmaterialviolationof,is,withrespecttoanyRetainedAsset,underinvestigationwithrespecttoanymaterialviolationof,or,withrespecttoanyRetainedAsset,hasbeengivennoticeorbeenchargedwithanymaterialviolationof,anylaw,statute,order,rule,regulation,ordinanceorjudgment(including,-withoutlimitation,anyapplicableEnvironmentalLaw,ordinanceorregulation)ofanyGovernmentalAuthority,and(ii)(otherthanascoveredunderclause(i)ofthisSection4.4(d))neitherCompanynoranyoftheCompanySubsidiariesnor,totheknowledgeofParentorCompany,anyCompanyJointVenture,isinmaterialviolationof,is.underinvestigationwithrespecttoanymaterialviolationof,orhasbeengivennoticeorbeenchargedwithanyniaterialviolationof,anylaw,statute,order,rule,regulation,ordinanceorjudgment(including,withoutlimitation,anyapplicableEnvironmentalLaw,ordinanceorregulation)ofanyGovernmentalAuthority.ExceptassetforthinSection4.4(d)oftheParentDisclosureScheduleorinSection4.9oftheParentDisclosureSchedule,CompanyandtheCompanySubsidiariesandCompanyJointVentureshaveallpermits,licenses,franchisesandothergovernmentalauthorizations,consentsandapprovalsnecessarytoconducttheirbusinessesaspresentlyconductedinallmaterialrespects.ExceptassetforthinSection4.4(d)oftheParentDisclosureSchedule,CompanyandeachoftheCompanySubsidiariesisnotinmaterialbreachorviolationoforinniaterialdefaultintheperformanceorobser'vanceofanytermorprovisionof,andnoeventhasoccurredwhich,withlapseoftimeoractionbyathirdparty,couldresultinamaterialdefaultunder,(i)itscertificateofincorporationorby-lawsor(ii)anymaterialcontract,commitment,,agreement,indenture,mortgage,loanagreement,'note,lease,bond,license,approvalorotherinstrumenttowhichitisapartyorbywhichitisboundortowhichanyRetainedAssetissubject.Section4.5ReportsandFinancialStatentents.ThefilingsrequiredtobemadebyParent,CompanyandtheCompanySubsidiariessinceJanuary1,1994undertheSecuritiesActof1933(the"SecuritiesAct"),theSecuritiesExchangeActof1934(the"ExchangeAct"),the1935Act,theFederalPowerAct,theAtomicEnergyActandapplicablestatelawsandregulationshavebeenfiledwiththeSecuritiesandExchangeCommission(the"SEC"),theFederalEnergyRegulatoryCommission("FERC"),theNuclearRegulatoryCommissionortheappropriatestatepublicutilitiescommission,asthecasemaybe,includingallforms,statements,reports,agreements(oralorwritten)andalldocuments,exhibits,amendmentsandsupplementsappertainingthereto,andcomplied,asoftheirrespectivedates,inallmaterialrespects,withallapplicablerequirementsoftheappropriatestatuteandtherulesandregulationsthereunder.ParentorCompanyhasmadeavailabletoAuthorityorLIPASubatrueandcompletecopyofeachrcport,schedule,registrationstatementanddefinitive"proxystatementfiledbyParentorCompanywiththeSECsinceJanuary1,1994(assuchdocumentshavesincethetimeoftheirfilingbeenamended,the"ParentSECReports").Asoftheirrespectivedates,the ParentSECReportsdidnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactrequiredtobestatedthereinornecessarytomakethestatementstherein,inlightofthecircumstancesunderwhichtheyweremade,notmisleading.TheauditedconsolidatedfinancialstatementsandunauditedinterimfinancialstatementsofCompanyincludedintheParentSECReportshavebeenpreparedinaccordancewithGAAP(exceptasmaybeindicatedthereinorinthenotestheretoandexceptwithrespecttounauditedstatementsaspermittedbyForm10-QoftheSEC)andfairlypresentthefinancialpositionofCompanyasofthedatesthereofandtheresultsofitsoperationsandcashflowsfortheperiodsthenended,subject,inthecaseoftheunauditedinterimfinancialstatements,tonormal,recurringauditadjustments.True,accurateandcompletecopiesoftherespectivecertificatesofincorporationandby-lawsofParentandCompany,asineffectonthedatehereof,areincluded(orincorporatedbyreference)intheParentSECReports.Section4.6AbsenceofCertainChangesorEvents.ExceptasdisclosedintheParentSECReportsfiledpriortothedatehereoforassetforthinSection4.6oftheParentDisclosureSchedule,sinceDecember31,1995,Parent,CompanyandeachoftheCompanySubsidiarieshaveconductedtheirbusinessonlyintheordinarycourseofbusinessconsistentwithpastpracticeandtherehasnotbeen,andnofactorconditionexistswhichwouldhaveor,insofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectontheRetainedAssetsortheproperties,business,operations,financialconditionorprospectsofthebusinessrelatingtotheRetainedAssetstakenasawholeoramaterialadversedeclineinthe'electricratesavingsprojectionspresentedtotheAuthorityatitsJune16,1997meetingtoberealizedaftertheClosing(a"MaterialAdverseEffect").Section4.7Litigation.ExceptasdisclosedintheParentSECReportsfiledpriortothedatehereoforassetforthinSection4.7orSection4.9oftheParentDisclosureSchedule,(i)therearenomaterialclaims,suits,actionsorproceedings,pendingor,totheknowledgeofParentandCompany,threatened,norarethere,totheknowledgeofParentandCompany,anymaterialinvestigationsorreviewspendingorthreatenedagainst,relatingto'oraffectingCompanyoranyoftheCompanySubsidiaries,(ii)therehavenotbeenanysignificantdevelopmentssinceDecember31,1996withrespecttosuchdisclosedclaims,suits,actions,proceedings,investigationsorreviewsand(iii)therearenomaterialjudgments,decrees,injunctions,rulesorordersofanycourt,governmentaldepartment,commission,agency,instrumentalityorauthorityoranyarbitratorapplicabletoCompanyoranyoftheCompanySubsidiaries.Section4.8RegistrationStatementandProxyStatement.NoneoftheinformationsuppliedortobesuppliedbyoronbehalfofCompanyforinclusionorincorporationbyreferenceinthe-proxystatement,indefinitiveform,relatingtothemeetingoftheCompanyshareholderstobeheldinconnectionwiththeMerger(the"ProxyStatement")will,atthedatemailedtoshareholdersandatthe.timeofthemeetingofshareholderstobeheldinconnectionwiththeMerger,containanyuntruestatementofamaterialfactoromittostateanymaterialfactrequiredtobestatedthereinornecessaryinordertomakethestatementstherein,inlightofthecircumstancesunderwhichtheyaremade,notmisleading.TheProxyStatementwillcomplyastoforminallmaterialrespectswiththeprovisionsoftheSecuritiesActandtheExchangeActandtherulesandregulationsthereunder.Section4.9EnviromnentalProtection.ExceptassetforthinSection4.9oftheParentDisclosureScheduleorintheParentSECReportsfile'dpriortothedatehereof:(a)Compliance.TheoperationandactivitiesoftheCompanyandeachoftheCompanySubsidiariesare,andhavebeen,inmaterialcompliancewithallEnvironmentalLaws(asdefinedinSection4.9(g)(ii))applicabletotheRetainedAssets;andneitherParent,CoinpanynoranyoftheCompanySubsidiarieshasreceivedanycommunication(writtenororal),froinanypersonorGovernmentalAuthoritythatallegesthatCompanyoranyoftheCompanySubsidiariesisnotinsuchcompliancewithapplicableEnvironmentalLaws.(b)Environ>nentalPern>its.CompanyandeachoftheCompanySubsidiarieshasobtainedorhasappliedforallmaterialenvironmentalhealthandsafetypermits.andallothergovernmentallicenses,permits,andauthorizations(collectively,the="EnvironmentalPermits")necessaryfortheconstructionoffacilitiesconstitutingpartoftheRetainedAssetsortheownershiporoperationofsuchfacilitiesorRetainedAsset,andallsuchEnvironmentalPermitsareingoodstanding.or,whereapplicable,arenewalapplicationhasbeentimely filedandispendingagencyapproval,andCompanyandtheCompanySubsidiariesareinmaterialcompliancewithalltertnsandconditionsoftheEnvironmentalPermits.(c)EnvironmenralCiaine.ThereisnomaterialEnvironmentalClaim(asdefinedinSection4.9(g)(i))pending(i)againstCompanyoranyoftheCompanySubsidiariesorCompanyJointVentures,(ii)tothebestknowledgeofParentandCompany,against,anypersonorentitywhoseliabilityforanyEnvironmentalClaimCompanyoranyoftheCompanySubsidiarieshas'ormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw,or(iii)againstanyrealorpersonalpropertyoroperationswhichCompanyoranyoftheCompanySubsidiariesownsorformerlyownedor,tothebestknowledgeofParentandCompany,anyrealorpersonalpropertyoroperationswhichCompanyoranyoftheCompanySubsidiariesleasesormanagesorformerlyleasedormanaged,ineachcase,inwholeorinpart.(d)Releases.ParentandCompanyhavenoknowledgeofanymaterialReleases(asdefinedinSection4.9(g)(iv))ofanyHazardousMaterial(asdefinedinSection4.9(g)(iii)),thatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaimagainstCompanyoranyoftheCompanySubsidiaries,oragainstanypersonorentitywhoseliabilityforanymaterialEnvironmentalClaimParentoranyoftheCompanySubsidiarieshasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw.(e)Predecessors.ParentandCompanyhavenoknowledge,withrespecttoanypredecessorofCompanyoranyoftheCompanySubsidiaries,ofanymaterialEnvironmentalClaimpendingorthreatened,orofanyReleaseofHazardousMaterialstha't"wouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaim.(f)Disclosure.ParentandCompanyhavedisclosedtoAuthorityorLIPASuballmaterialfactswhichParentreasonablybelievesformthebasisofamaterialEnvironmentalClaimarisingfrom(i)thecostofCompanypollutioncontrolequipmentcurrentlyrequiredorknowntoberequiredinthefuturewithrespecttottheRetainedAssets;(ii)currentCompanyremediationcostsorCompanyremediationandsitemonitoringcostsknowntoberequiredinthefuturewithrespecttotheRetainedAssets;or(iii)anyotherenvironmentalmatteraffectingCompanywithrespecttotheRetainedAssets.(g)AsusedinthisAgreement:(i)"EnvironmentalClaim"meansanyandalladministrative,regulatoryorjudicialactions,suits,demands,demandletters,directives,claims,liens,investigations,proceedingsornoticesofnoncomplianceorviolation(writtenororal)byanypersonorentity(includinganyGovernmentalAuthority)alleging,potentialliability(including,withoutlimitation,potentialresponsibilityfororliabilityforenforcement,"investigatorycosts,cleanupcosts,governmentalresponsecosts;removalcosts,remedialcosts,naturalresourcesdatnages,propertydamages,personalinjuriesorpenalties)arisingoutof,basedonorresultingfrom(A)thepresence,orReleaseorthreatenedReleaseintotheenvironment,ofanyHazardousMaterialsatanylocation,whetherornotowned,operated,leasedormanagedbyCompanyoranyoftheCompanySubsidiariesorCompanyJointVenturesandconstitutingaportionoftheRetainedAssets(forpurposesofthisSection4.9)';or(B)circumstancesformingthebasisofanyviolation,orallegedviolation,ofanyEnviromnentalLawwithrespecttotheRetainedAssets;or(C)anyandallclaimsbyanythirdpartyseekingdamages,contribution,indemnification,costrecovery,compensationorinjunctivereliefresultingfromthepresenceorReleaseofanyHazardousMaterialswithrespecttotheRetainedAssets.(ii)"EnvironmentalLaws"meansallfederal,state,locallaws,ordinances,rulesandregulationsrelatingtohealthandsafety,pollution,theenviromnent(including,withoutlimitation,ambientair,surfacewater,groundwater,landsurfaceorsubsurfacestrata)orprotectionofhumanhealthasitrelatestotheenvironmentincluding,withoutlimitation,lawsandregulationsrelatingtoReleasesorthreatenedReleasesofHazardousMaterials,orotherwiserelatingtothemanufacture,processing,distribution,use,treatment,storage,disposal,transportorhandlingofHazardousMaterials.(iii)"HazardousMaterials"means(A)anypetroleumorpetroleumproducts,radioactivematerials,asbestosinanyformthatisorcouldbecomefriable,ureaformaldehydefoaminsulation,andtransformers orotherequipmentthatcontaindielectricfluidcontainingpolychlorinatedbiphenyls("PCBs");and(B)anychemicals,materialsorsubstanceswhicharenowdefinedasorincludedinthedefinitionof"hazardoussubstances","hazardouswastes","hazardousmaterials","extremelyhazardouswastes","restrictedhazardouswastes","toxicsubstances","toxicpollutants",orwordsofsimilarimport,underanyEnvironmentalLaw;and(C)anyotherchemical,material,substanceorwaste,exposuretowhichisnowprohibited,limitedorregulatedunderanyEnvironmentalLawinajurisdictioninwhichCompanyoranyof'heCompanySubsidiariesorCompanyJointVenturesoperatesusinganyRetainedAssets(forpurposesofthisSection4.9).(iv)"Release"meansanyrelease,spill,emission,leaking,injection,deposit,disposal,discharge,dispersal,leachingormigrationintotheatmosphere,surfaceorsubsurfacesoil,surfacewater,saltwatershorelineorfloorbottom,groundwaterorpropertyfromoraffectinganyRetainedAssets.Section4.10RegulationasaUtility.Exceptas"setforthin,Section4.10oftheParentDisclosureSchedule,neither'Companynorany"subsidiarycompany"or"affiliate"(assuchtertnsaredefinedinthe1935Act)ofCompanyissubjecttoregulationasapublicutilityorpublicservicecompany(orsimilardesignation)byanystateintheUnitedStatesotherthanNewYorkoranyforeigncountry.Section4.11VoteRequired.Thefollowingaretheonlyvotes("CompanyShareholderApproval")oftheholdersofanyclassorseriesofthecapitalstockofCompanyoranyofitssubsidiariesrequiredtoadoptthisAgreement,theotherBasicAgreementsandtheothertransactionscontemplatedherebyandthereby:(a)theadoptionofthisAgreementbytwo-thirdsof,thevotesentitledtobecastbyallholdersofCompanyCommonStockandCompanyPreferredStock(otherthantheRedeemablePreferredStockredeemedinaccordancewithSection2.1(c)(ii)),votingtogetherasasingleclass(witheachshareentitledtoonevote,exceptthatCompanyPreferredStockwith$25parvalueisentitledtoonlyI/4votepersharc);(b)theadoptionofthisAgreementbyamajorityofthevotesentitledtobecastbyallholdersofCompanyPreferredStock(otherthansuchRedeemablePreferredStock),votingtogetherasasingleclass(witheachshareentitledtoonevote,exceptthatCompanyPreferredStockwith$25parvalueisentitledtoonly1/4votepershare);(c)theadoptionofthisAgreementbyamajorityofthevotesentitledtobecastbyallholdersofCompanyCommonStock,votingseparatelyasa"class;and(d),theadoptionofthisAgreemcntbyamajorityofthevotesentitledtobecastbyholdersofSeriesAAPreferredStockandeachseriesofNonredeemablePreferredStock,ineachcasevotingasaseparateclass.Section4.12Insurance.ExceptassetforthinSection4.12oftheParentDisclosureSchedule,CompanyandeachoftheCompanySubsidiariesis,andhasbeencontinuouslysinceJanuary1,1991,insuredwithfinanciallyresponsibleinsurersinsuchamountsandagainstsuchrisksandlossesasarecustomaryinallmaterialrespectsforcompaniesconductingthebusinessasconductedbyCompanyandtheCompanySubsidiariesduringsuchtimeperiod.ExceptassetforthinSection4.12oftheParentDisclosureSchedule,neitherParent,CompanynoranyoftheCompanySubsidiarieshasreceivedanynoticeofcancellationorterminationwithrespecttoanymaterialinsurancepolicyofCompanyoranyoftheCompanySubsidiaries.TheinsurancepoliciesofCompanyandeachofthe.CompanySubsidiariesarevalidandenforceablepoliciesinallmaterialrespects.Section4.13Disclosure.NorepresentationsorwarrantiesbyParentorCompanyinthisAgreementandnostatementcontainedinanydocumentfurnishedbyParentorCompanytoAuthorityorLIPASubpursuanttotheprovisionsof,orinconnectionwiththetransactionscontemplatedbythisAgreement,willcontainanyuntrue~statementofmaterialfactoromitanymaterialfactnecessary,inlightofthecircumstancesunderwhichitwas~made,inordertomakesuchstatementnotmisleading.
ARTICLEVRE<PRE<SENTATIONSANDWARRANTIESOFAUTHORITYANDLIPASUBMAuthorityrepresentsandwarrantstoParentandCompanyasfollows:Section5.1Organization.AuthorityisacorporatemunicipalinstrumentalityandpoliticalsubdivisionoftheStateofNewYorkandwascreatedbylegislationoftheStateofNewYork(C)iapter517ofthe1986LawsofNewYork).LIPASubisacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionofincorporationororganization.EachofAuthorityandLIPASubhasallrequisitecorporatepowerandauthority,andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetsandpropertiestotheextentowned,leasedandoperatedandtocarryonitsbusinessasitisnowbeingconductedandisdulyqualifiedandingoodstandingtodobusinessineachjurisdictioninwhichthenatureofitsbusinessortheownershiporleasingofitsassetsandpropertiesmakessuchqualificationnecessary.Section5.2Authority;Non-Contravention;StatutoryApprovals;Compliance.(a)Authority.EachofAuthorityandLIPASubhasallrequisitepowerandauthoritytoenterintothisAgreementandeachoftheotherBasicAgreementstowhichitisapartyand,subjecttotheAuthorityRequiredStatutoryApprovals(asdefinedinSection5.2(c))toconsummatethetransactionscontemplatedherebyandthereby.TheexecutionanddeliveryofthisAgreementbyeachofAuthorityandLIPASubandeachoftheotherBasicAgreementstowhichitisa,partyandtheconsummationbyeachofAuthorityandLIPASubofthetransactionscontemplatedherebyandtherebyhavebeendulyauthorizedbytheBoard.ofTrusteesofAuthorityandtheBoardofDirectorsofLIPASub;noothercorporateproceedingsonthe"partofeachofAuthorityandLIPASubarenecessarytoauthorizethisAgreement,eachoftheotherBasicAgreementstowhichitisapartyortoconsummatethetransactionscontemplatedherebyandthereby.ThisAgreementhasbeendulyandvalidlyexecutedanddeliveredbyAuthorityandLIPASub'and,assumingthedueauthorization,executionanddeliverythereofbytheothersignatorieshereto,thisAgreementconstitutesthevalidandbindingobligationofAuthorityandLIPASub,enforceableagainsteachofAuthorityandLIPASubinaccordancewithitsterms.~k(b)Non-Contravention.TheexecutionanddeliveryofthisAgreementandeachoftheotherBasicAgreementsbyAuthorityorLIPASubdoesnot,andtheconsummationofthetransactionscontemplatedherebyandtherebywillnot,resultinamaterialViolationpursuanttoany.provisionsof(i)thecertificateofincorporation,by-lawsorsimilargoverningdocumentsofLIPASub,(ii)subjecttoobtainingtheAuthorityRequiredStatutoryApprovals,anystatute,law,ordinance,rule,regulation,judgment,decree,order,injunction,writ,permitorlicenseofanyGovernmentalAuthorityapplicabletoAuthorityorLIPASubor(iii)anyprovisionsofanymaterialnote,bond,mortgage,indenture,deedoftrust,license,franchise,permit,concession,contract,leaseorotherinstrument,obligationoragreementofanykindtowhichAuthorityorLIPASubisapartyorbywhichitoranyofitspropertiesorassetsmaybebound.(c)StatutoryApprovals.Nodeclaration,filingorregistrationwith,ornoticetoor.authorization,consentorapprovalof,anyGovernmentalAuthorityisnecessaryforthe,executionanddeliveryofthis'AgreementandeachoftheotherBasicAgreementsbyeachofAuthorityandLIPASubortheconsummationbyeachofAuthorityandLIPASubofthetransactionscontemplatedherebyandthereby,exceptassetforthinwritingbyAuthority(the"AuthorityRequiredStatutoryApprovals").Section5.3Disclosure.NorepresentationsorwarrantiesbyAuthorityorLIPASubinthisAgreementandnostatementcontainedinanydocumentfurnishedbyAuthorityorLIPASubtoParentorCompanypursuanttotheprovisionsof,or,inconnectionwiththetransactionscontemplatedby,thisAgreement,willcontainanyuntruestatementofmaterialfactoromitanymaterialfactnecessary,inlightofthecircumstancesunderwhichitwasmade,inordertomakesuchstatementnotmisleading.<<tSection5.4OwnershipofLIPASub;NoPriorActivities.LIPASubisadirect;whollyownedsubsidiaryofAuthorityandwasformedsolelyforthepurposeofengaginginthetransactionscontemplatedbythisAgreement.AsofthedatehereofandtheEffectiveTime,exceptforobligationsorliabilitiesincurredin connectionwithitsincorporationororganizationandthetransactionscontemplatedbythisAgreementandexceptforthisAgreementandanyotheragreementsorarrangementscontemplatedbythisAgreement,LIPASubhasnotandwillnothaveincurred,directlyorindirectly,throughanysubsidiary'oraffiliate,anyobligationsorliabilitiesorengagedinanybusinessactivitiesofanytypeorkindwhatsoeverorenteredintoanyagreements.orarrangemeritswithanyperson.Section5.5OwnershipofCompanyConnnonStock.NeitherAuthoritynorLIPASub"beneficiallyowns"(assuchtermisdefinedforpurposesofSection13(d)oftheExchangeAct)anysharesofCompanyCommonStockorCompanyPreferredStock.ARTICLEVICOVENANTSSection6.1CovenantsofParentandCompany.AfterthedatehereofandpriortotheClosingDateorearlierterminationofthisAgreement,ParentandCompanyagreeasfollows,astothemselvesandtoeachoftheCompanySubsidiaries,asthecasemaybe,exceptasexpresslycontemplatedorpermittedinthisAgreement,theotherBasic'Agreementsortotheextenttheotherpartiesheretoshallotherwiseconsentinwriting:(a)OrdinaryCourseofBusiness.WithrespecttotheRetainedAssetsonly,CompanyandtheCompanySubsidiariesshallcarryontheir'respectivebusinessesintheusual,regularandordinarycourseinsubstantiallythesamemannerasheretoforeconductedanduseallcommerciallyreasonableeffortstopreserveintacttheirpresentbusinessorganizationsandgoodwillandpreservethegoodwillandrelationshipswithcustomers,suppliersandothershavingbusinessdealingswiththem.CompanyandtheCompanySubsidiariesmay,withthepriorapprovalofAuthorityorLIPASub,engagein.,transactionsoutoftheordinarycourseofbusinessrelatingtotheRetainedA'ssets,suchapprovalnottobeunreasonablywithheldordelayed;provided,however,thatthefollowingwillnotbesubjecttoAuthority'sorLIPASub'spriorapproval:anytransactioninvolvingtheTransferredAssets;provided,however,thatsuchapprovalwillberequiredfor(A)anytransactionthatwouldimpairtheapplicableTransfereeSubsidiary'sabilitytoperformitsobligationsunderanyBasicAgreementorthatwouldviolate'nytermoftheGenerationPurchaseRightAgreementor(B)anytransactionwherebyCompany'ntersintoacapacityortransmissionpurchaseagreementrelatingtothepurchaseofmorethan75megawattsofcapacityorhavingatermwhichextendsbeyondMarch19,1999.ExceptassetforthinSection6.1(a)oftheParentDisclosureScheduleorascontemplatedinthisSection6.1(a),neitherCompanynoranyoftheCompany,SubsidiariesshallmakeanychangeinthelineofbusinessinvolvingtheRetainedAssets.inwhichitengagesasofthedatehereofwhichinvolvesanyinaterialinvestmentofassetsorresourcesoranymaterialexposuretoliabilityorlosstotheRetainedAssetstakenasawhole.(b)CharterDocuments.-Companyshallnotamendnorproposetoamenditscertilicateofincorporation,by-lawsorregulations,orsimilarorganizationaldocuments,exceptascontemplatedhereinorassetforthinSection6.1(b)oftheParentDisclosureSchedule.'(c)NoAcquisitions.ExceptassetforthinSection6.1(c)oftheParentDisclosureScheduleorascontemplatedinSection6.1(a),neitherCompanynoranyoftheCompanySubsidiariesshallacquire,orpubliclyproposetoacquire,oragreetoacquire,bymergerorconsolidationwith,orbypurchaseorotherwise,inatransactionrelatingtotheRetainedAssets,asubstantialequityiriterestinorasubstantialportionoftheassetsof,anybusinessoranycorporation,partnership,associationorotherbusinessorganizationordivisionthereof,norshallanypartyacquireoragieetoacquire,inatransactionrelatingtotheRetainedAssets,amaterialamountofassetsotherthanintheordinarycourseofbusinessconsistentwithpastpractice.'d)Capital,Expenditttres.Except'ssetforthinSection6.1(d)oftheParentDisclosureSchedule,orasrequiredbylaw,neitherCompanynoranyoftheCompanySubsidiariesshallmakecapitalexpendituresorcommitmentsrelatingtotheRetainedAssetsinanaggregateamount'significantlylessorsignificantly,morethantheamountsprojectedthereforinCompany's1996electricratefiling.
(e)NoDispositions.ExceptassetforthinSection.6.1(e)of,theParentDisclosure.ScheduleorascontemplatedbySection6.1(a),singularlyorintheaggregate,neitherCompanynoranyoftheCompanySubsidiariesshallsell,lease,license,encumberorotherwisedisposeof,anyoftheRetainedAssets,otherthanencumbrancesordispositionsintheordinarycourseofitsbusinessconsistentwithpastpracticeandotherthandispositionsofRetainedAssetsbyCompanyandtheCompanySubsidiariesoflessthan$10millionintheaggregate;provided,however,thatnotwithstandingtheforegoing,neitherCompanynoranyoftheCompanySubsidiariesshallsell,lease,license,encumberorotherwisedisposeof,anyattachmentorsimilarrights.(f)Indebtedness.ExceptascontemplatedbyanyBasicAgreement,neitherCompanynoranyoftheCompanySubsidiariesshallincurorguaranteeanyindebtedness(includinganydebtborrowedorguaranteedorotherwiseassumedincluding,withoutlimitation,theissuanceofdebtsecuritiesorwarrantsorrightstoacquiredebt)orenterintoany"keepwell"orotheragreementtomaintainanyfinancialstatementconditionofanotherpersonorenterintoanyarrangementhavingtheeconomiceffectofanyoftheforegoingotherthanincurrencestorefinanceexistingindebtedness,incurrencesofdebtthatwillbeassumedbyParentand/oroneormoreTransfereeSubsidiariesattheClosingandotherthanassetforthinSection6.1(f)oftheParentDisclosureSchedule.(g)Transmission,Generation.ExceptasrequiredpursuanttotariffsonfilewiththeFERCasofthedatehereof,intheordinarycourseofbusinessconsistentwithpastpractice,orassetforthinSection6.1(g)oftheParentDisclosureSchedule,neitherCompanynoranyoftheCompanySubsidiariesshall(i)commenceconstructionofanyadditionalelectricgenerating,transmissionordeliverycapacity,or(ii)obligateitselftopurchaseorotherwiseacquire,ortosellorotherwisedisposeof,ortoshare,anyadditionalelectricgenerating,transmissionordeliverycapacityexceptasprovidedinclause(B)ofthesecondprovisotoSection6.1(a)orassetforthinthebudgetofCompanyonthedatehereofassetforthinSection6.1(d)oftheParentDisclosureSchedule.(h)Accounting.ExceptassetforthinSection6.1(h)oftheParentDisclosureSchedule,ParentandCoinpanyshallnot,norshallParentandCompanypermitanyoftheCompanySubsidiariesto,makeanychangesintheiraccountingmethodsorprinciples,exceptasrequiredbylaw,rule,regulationorGAAP..(i)AffiliateTransactions.ExceptassetforthinSection6.1(i)oftheParentDisclosureSchedule,neitherCompanynoranyoftheCompanySubsidiariesshallenterintoanymaterialagreementorarrangementwithanyoftheirrespectiveaffiliates(otherthan'hosewholly-ownedsubsidiarieswhichwillconstituteRetainedAssets)ontermsmateriallylessfavorabletosuchpartythancouldbereasonablyexpectedtohavebeenobtainedwithanunaffiliatedthirdpartyonanarm'-lengthbasis.(j)Cooperation,Norificntion.ParentandCompanyshall,andshallcausetheCompanySubsidiariesto,(i)conferonaregularandfrequentbasiswithoneormorerepresentativesofAuthorityorLIPASubtodiscuss,subjecttoapplicablelaw,materialoperationalmattersandthegeneralstatusofitsongoingoperations;(ii)promptlynotifyAuthorityorLIPASubofanysignificantchangesinitsbusiness,properties,assets,condition(financialorother),resultsofoperationsorprospects;(iii)adviseAuthorityorLIPASubofanychangeoreventwhichhashador,insofarasreasonablycanbeforeseen,isreasonablylikelytoresultinaMaterialAdverseEffect;and(iv)promptlyprovideAuthorityorLIPASubwithcopiesofallfilingsmadebyParentorCompanyoranyoftheCompanySubsidiarieswithanystateorfederalcourt,administrativeagency,commissionorotherGovernmentalAuthorityin.connectionwithanyBasicAgreementandthetransactionscontemplatedherebyandtherebyor.theRetainedAssets.e(k),RateMa!ters.ParentandCompanyshall,andshallcausetheCompanySubsidiariesto,notifyAuthorityorLIPASubofanychangesinitsorCompany'sratesorcharges(otherthanpass-throughfuelratesorcharges,butincluding,withoutlimitation,gasratesorcharges),standardsofserviceoraccountingfromthoseineffectonthedatehereof.WithouttheconsentofAuthority(whichconsentwillnotbeunreasonablywithheld),CompanyshallnotfileorprosecuteanyratecaseorothernonroutineproceedingbeforethePublicServiceCommissionoftheStateofNewYork(the"PSC")orFERCoranyappealtherefrom,exceptforcasesor proceedings(i)relatingsolelytopass-throughfuelorgasratesorcharges,(ii)requiredtobemadebyorderofthePSCorFERC,(iii)relatingsolelytotheTransferredAssetsor(iv)involvingcommercialorcontractualdisputeswhicharerequiredtoberesolvedthroughsuchproceedings;provided,however,thatifCompanyreasonablybelievesthatamatterthreatensthefinancialviabilityofCompany,itmaydefendorprosecutesuchmatterbeforethePSCorFERC.EitherinseekingconsentfromAuthorityorifCompanyhastherighttodefendorprosecuteamatterascontemplatedherein,Companyshallprovide30dayspriornoticetoAuthority(including,.uponrequestofAuthority,copiesofdraftdocumentation)ofanyproposedfilingwiththePSCorFERCunlessCompanyreasonablydeterminesthatcircumstancesrequireactionwithinsuch30dayperiod,inwhicheventCompanyshallprovideAuthoritywithaspromptnoticeasispracticable.Thepartieswillconsultwitheachotherwithrespecttoallmattersdescribedintheprecedingtwosentences.'1)Third-PartyConsents.ParentandCompanyshall,andshallcausetheCompanySubsidiariesto,useallcommerciallyreasonableeffortstoobtainallParentRequiredConsents.ParentshallpromptlynotifyAuthorityorLIPSSubofanyfailureorprospectivefailuretoobtainanysuchconsentsand,ifrequestedbyAuthorityorLIPASub,shallprovidecopiesofallParent,RequiredConsentsobtainedbyParentorCompanytoAuthorityorLIPASub.(m)NoBreach,Etc.ParentandCompanyshallnot,norpermitany,oftheCompanySubsidiariesto,willfullytakeanyactionthatwouldorisreasonablylikelytoresultinamaterialbreachofanyprovisionofanyBasicAgreement,asthecasemaybe,orinanyofitsrepresentationsandwarrantiessetforthinanyBasicAgreement,asthecasemaybe,beinguntrueonandasoftheClosingDateoranyconditionfotheirobligationtoclosenotbeingsatisfied.(n)Tax-ExetnptStatus.ParentandCompanyshallnot,norshallParentandCompanypermit,anyCompanySubsidiaryto,takeanyactionthatwouldlikelyjeopardizethequalificationofCompany'soutstandingrevenuebondswhichqualifyonthedatehere'ofunderSection142(a)oftheCodeas"exemptfacilitybonds"orastax-exemptindustrialdevelopmentbondsunderSection103(b)(4)oftheInternalRevenueCodeof1954,asainended,priortotheTaxReformActof1986.(o)TaxMatters.ExceptwithrespecttothematterssetforthintheLILCOTaxMattersDisclosureScheduleattachedtoScheduleD,ParentandCompanyshallnotmakeorrescindanymaterialexpressordeemedelectionrelatingtotaxes,settle(otherthanwithinestablishedreserves)orcompromiseanymaterialclaim,action,suit,litigation,proceeding,arbitration,investigation,auditorcontroversyrelatingtotaxes,orchangeanyofitsmethodsofreportingincomeordeductionsforfederalincometaxpurposesfromthoseemployedinthepreparationoftheirrespectivefederalincometaxreturnsforthetaxableyearendingDecember31,1995,exceptasmayberequiredbyapplicablelaw.(p)Contracts.SubjecttoSection6.1(a)andexceptassetforthinSection6.1(p)ofParentDisclosureSchedule,ParentandCompanyshallnot,otherthanintheordinarycourseofbusinessconsistentwithpastpractice,modify,amend,terminate,reneworfailtousereasonablebusinesseffortstorenewanymaterialfranchise,contractoragre'ementtowhichCompanyoranyCompanySubsidiaryisapartyorwaive,releaseorassignanymaterialrightsorclaims,provided,however,thatParentandCompanyshallnotenterintonewpowersupplyagreements,oramendexistingpowersupplyortransmissionagre'ements,withoutpriorapprovalofAutho'rity(whichapprovalwillnotbeunreasonablywithheld).(q)Insurance.ParentandCompanyshall,andshallcausetheCompanySubsidiariesto,maintainwithfinanciallyresponsibleinsurancecompaniesinsuranceinsuchamountsandagainstsuchrisksandlossesasarecustomaryforcompaniesengagedintheelectricandgasutilityindustryandemployingmethodsofgeneratingelectricpowerandfuelsourcessimilartothosemethodsemployedandfuelsusedbyParent,CompanyortheCompanySubsidiaries'.'ll(r)Pernu'ts.ParentandCompanyshall,andshallcausetheCompanySubsidiariesto,usereasonableeffortstomaintainineffectallexistinggovernmentalpermitspursuanttowhichCompanyortheCompanySubsidiariesownand'operateanyRetainedAsset.
(s)-CompliancewithLaiv.Permits.Theoperationsandactivities,ofCompany,andtheownership,r~~~~~t~~~~~~)~~~~~~~~1~~~1~~~tpossession,maintenanceandoperationoftheRetainedAssets,havecompliedandareincompliance,inallrespects,withallapplicablefederal,stateandlocal,laws,statutes,acts,regulations,codes,ordinances,rules,judgments,orders,decrees,judgments,injunctions,ornoticesordemandlettersissuedorpromulgatedorapprovedthereunder("ApplicableLaw").ExceptassetforthinSection6.1(s)ofParentDisclosureSchedule,Companyhasallmaterial'federal,state,andlocalgovernmentallicenses,permits,approvals",franchisesandotherauthorizations("Permits")asarenecessaryinorderforittoconductthebusinessconductedwiththeRetainedAssets.NomaterialviolationshavebeenrecordedinrespectofanyPermitsandnoproceedingispendingor,totheknowledgeofParentorCompany,threatenedwithrespecttothelimitationorrevocationofanyPermit.Section6.2CovenantsofAuthorityandLIPASub.(a)Filings.AuthorityandLIPASubshallpromptlyprovideParentandCompanywithcopiesofallfilingsmadebyAuthorityorLIPASubwithanystateorfederalcourt,administrativeagency,commissionoIotherGovernmentalAuthorityinconnectionwiththisAgreementoranyBasicAgreementandthetransactions'ontemplatedherebyandthereby.(b)Third-PartyCotrsettts.AuthorityandLIPASubshalluseallcommerciallyreasonableeffortstoobtainallAuthorityRequiredConsents.AuthorityshallpromptlynotifyParentandCompanyofanyfailureorprospectivefailuretoobtainanysuchconsentsand,ifrequestedbyParentorCompany,shallprovidecopiesofallAuthorityRequiredConsentsobtainedbyAuthorityandLIPASubtoParentandCompany.1(c)NoBreach,Etc.AuthorityandLIPASubshallnotwillfullytakeanyactionthatwouldoriyreasonablylikelytoresultin(x)amaterialbreachofanyprovision'ofthisAgreementoranyotherBasicAgreement,asthecasemaybe,(y)anyoftheirrepresentationsandwarrantiessetforthinthisAgreementorinanyotherBasicAgreementbeinguntrueon,andasoftheClosingDateor(z)anyconditiontotheirobligationstoclosenotbeingsatisfiedARTICLEVIIADDITIONALAGREEMENTSSection7.1AccesstoInformation.Uponreasonablenotice,eachpartyshallaffordtotheofficers,employees,accountants,counsel,investmentbankers,financialadvisors,engineersandotherrepresentativesoftheother(collectively,"Representatives")reasonableaccess,duringnormalbusinesshoursthroughouttheperiodpriortotheEffectiveTime,toallofitsproperties,books,contracts,commitmentsandrecordsand,duringsuchperiod,eachpartyshallfurnishpromptlytotheother(i)accesstoeachreport,scheduleandotherdocument,filedorreceivedbyitpursuanttotherequirementsoffederalorstatesecuritieslawsorfiledwithorsenttotheSEC,theFERC,theNRC,theDepartmentofJustice,theFederalTradeCommission,thePSCoranyotherfederalorstateregulatoryagencyorcommission,and(ii)accesstoallinformationconcerningthemselves,theirsubsidiaries,directorsandofficersandsuchothermattersasmaybereasonablyrequestedbytheotherpartyinconnectionwithanyfilings;applicationsorapprovalsrequiredorcontemplatedbythisAgreementorforanyotherreasonrelatedtothetransactionscontemplatedbythisAgreement.Inaddition,CompanyandParentshallpromptlyfurnishtoAuthorityuponrequestallsuchinformationasmaybenecessaryordesirableinorderthatAuthoritymayobtainthefinancingreferredtoinSection8.1(fl.Section7.2ProxyStatementandRegistrationStatement.CompanywillprepareandfilewiththeSECassoonasreasonablypracticableafterthedatehereoftheregistrationstatementrelatingtotheParentShares(the"RegistrationStatement")andtheProxyStatement.ThepartiesheretoshalleachusereasonableeffortstocausetheRegistrationStatementtobedeclaredeffectiveundertheSecuritiesActaspromptlyaspracticableaftersuchfiling.EachofthepartiesheretoshallfurnishallinformationconcerningitselfwhichjsrequiredorcustomaryforinclusionintheProxy/RegistrationStatement.
Section7.3SbareholderApproval.Companyshall,assoonasreasonablypracticableafterthedatehereof,(i)takeallstepsnecessarytodulycall,givenoticeof,conveneandholdaspecialmeetingofitsshareholdersforthepurposeofsecuringtheapprovalofitsshareholders,(ii)distributetoitsshareholderstheProxyStatementinaccordance'ith'applicablefederalandstatelawandwithitsRestatedCertificateofIncorporationandby-laws,(iii)subjecttothefiduciaryduties"ofitsBoardofDirectors,recommendtoitsshareownerstheadoptionofthisAgreementandthetransactionscontemplatedherebyand(iv)cooperateandconsultwithAuthoritywithrespecttoeachoftheforegoingmatters.Intheeventthat'duringthespecialmeetingofshareholdersreferredtoabovetheCompanyShareholderApprovalisinitiallynotobtained,CompanyshalladjourntliemeetingforareasonableperiodandCompanyandParen'tslialltakesuchactionsasmaybenecessaryordesirableinordertoobtaintheCompanyShareholderApprovalwhensuchmeetingisreconvened.Section7.4DisclosureSchedule.(a)Onthedatehereof,ParenthasdeliveredtoAuthorityaschedule(the""ParentDisclosureSchedule"),accompaniedbyacertificatesignedbytheChiefFinancialOfficerof,CompanystatingthattheParentDisclosureScheduleis'beingdeliveredpursuanttothisSectiOn7.4(a).TheParentDisclosureScheduleconstitutesanintegralpartofthisAgreementandmodifiestherepresentations,warranties,covenantsoragreementsofParentheretocontainedhereintothe'extentthatsuchrepresentations,warranties,covenantsoragreementsexpresslyrefertotheParentDisclosureSchedule.(b)Notlaterthan30daysbeforethedatescheduledfortheClosing,ParentshalldelivertoAuthorityarevisedParentDisclosureSchedule(the"UpdatedParentDisclosureSchedule"),accompaniedbyacertificatesignedbytheChiefFinancialOfficerofCompanystatingthattheUpdatedParentDisclosureScheduleisbeingdeliveredpursuanttothisSection7.4(b).TheUpdatedParentDisclosureScheduleshallcontaintheinformationParentbelieveswouldberequiredtocomplywiththeconditionsetforthinSection8.2(b)(butforpurposessolelyofthisSection7.4(b),asif'suchSection8.2(b)didnotcontainanyreferencetoMaterialAdverseEffect).NoliabilityshallariseunderanyBasicAgreementbyreasonofthedeliveryoftheUpdatedParentDisclosureScheduleor,aftertheEffectiveTime,byreasonofanymatterdisclosedtherein.Section7.5RegulatoryMarrers.Eachpartyheretoshallcooperateanduseitsbesteffortstopromptlyprepareandfileallnecessarydocumentationandtoeffectallnecessaryapplications,notices,petitions,filingsandotherdocuments,andshalluseallcommerciallyreasonableeffortstoobtainallnecessarypermits,consents,approvalsandauthorizationsofallGovernmentalAuthoritiesnecessaryoradvisabletoconsummatethetransactionscontemplatedbythisAgreement,including,withoutlimitation,theParentRequiredStatutoryApprovalsandtheAuthorityRequiredStatutoryApprovals.Parent,Company,AuthorityandLIPASubshallcooperateingoodfaithandconsultwitheachotheronallcompone'ntsof,significantstepstowardsthecompletionof,andsignificantamendmentsto,theapplicationstoobtaintheParentRequiredStatutoryApprovalsandtheAuthorityRequiredStatutoryApprovals,andwithrespectto'materialfilings,communications,agreements,arrangementsorconsents,written'ororal,formalorinforinal,relatingtoapplicationsforsuchApprovals.Section7.6PublicAnnouncements.Parent,Company,AuthorityandLIPASubwillcooperatewitheachotherinthedevelopmentanddistributionofallnewsreleasesandotherjointpublicinformationdisclosureswithrespecttothisAgreementandanyotherBasicAgreementoranyofthetransactionscontemplatedhereby.Section7.7Confidentiality.(a)'CompanyRequest.ThepartiesacknowledgethatcertaininformationthatmaybefurnishedpursuanttotheprovisionsofthisAgreementmaybeconfidentialandproprietarytoCompany.TheCompanyinidParenteachacknowledgesthatAuthoritymayberequiredtodiscloseinformationuponrequestunderapplicablelaw.TheCompanyshallhavetherighttorequestAuthorityinwritingnottopubliclydiscloseanyinformationwhichCompanybelievestobeconfidentialorproprietaryandnotsubjecttopublicdisclosureunderapplicablelaw,andsuchrequestwillbeaccompaniedbyanexplanationofitsreasonsforsuchbelief.Anyinformationwhichisthesubjectofsucharequestshallbeclearlymarkedonallpages,sliallbebound,andshallbephysicallyseparatefromallnon-confidentialandnon-proprietaryinformation.AtCompany'srequest,AuthorityanditsRepresentativesgivenaccesstosuchinformationshallexecuteandcomplywiththetermsofaconfidentialityagreementinamutuallyacceptableform,subjecttoapplicablelaw.D-20 (b)AuthorityNon-Disclosure.IfAuthorityreceivesarequestfromthepublicforthedisclosureofanyinformationdesignatedasconfidentiaorproprietarybyCompanypursuanttosubsection(a)ofthisSection7.7,Authority(1)shallusereasonableefforts,consistentwithapplicablelaw,to,providenoticetoCompanyoftherequestpriortoanydisclosure,and(2)shallusereasonableefforts,consistentwithapplicablelaw,.-tokeepinconfidenceandnotdisclosesuchinformationunlessitisentitledtodosopursuanttotheprovisionsofsubsection(c)ofthisSection7.7.Companyshallindemnify,holdharmlessanddefendAuthorityagainstalllossesincurredfromthewithholdingfrompublicdisclosureofinformationdesignatedasconfidentialorproprietarybyCompanyorotherwiserequestedbyCompanytobewithheld.(c)PreviouslyFurnishedInforntation.CompanyherebypertnifsAuthorityanditsRepresentativestoobtainallinformationpreviouslyfurnishedbyCompanytoBear,Stearns&Co.Inc.andcertainotherpersonspursuanttotheletterdatedOctober11,1995,(asamendedtodate)subjecttothetermsandconditionsofthisSection7.7.Authorityagreesthatallsuchinfotmafion(otherthaninformationdescribedinclauses(1),(2)or(3)ofSection7.7(e))shallbedeemedtobedeliveredtoAuthoritypursuanttotheproceduressetforthinSection7.7(a)forthepurposeofidentifyingconfidentialorproprietaryinformation.fl(d)RestrictiononUse.AuthorityandLIPASubmaynotuseanyconfidentialorproprietaryinformationdisclosedtoeitherofthembyCompany(otherthaninformationdescribedinclauses(I),(2)or(3)ofSection7.7(e))intakinganyactiondescribedinclauses(a),(b),(c)or(d)ofArticleXatanytimeafterthedatehereof.r(e)PerntittedDisclosures.NotwithstandinganyconfidentialorproprietarydesignationthereofbyCompany,Authoritymaydisclosethefollowing:(1)informationwhichisknowntoAuthoritywithoutanyrestrictionastodisclosureoruseatthetimeitisfurnished,(2)infotmationwhichisorbecomesgenerallyavailabletothepublicwithoutbreachofanyagreement,(3)informationwhichisreceivedfromathirdpartywithoutlimitationorrestrictiononsuchthirdpartyorAuthorityatthetimeofdisclosure,or(4)followingnoticettoCompanypursuanttosubsection(b)ofthisSection,informationwhich,intheopinionofcounselforAuthority,isrequiredtobedisclosedunderanyapplicablelaw,anorderofacourtofcompetentjurisdiction,oralawfulsubpoena.Section7.8CertainLitigation.(a)ClassSettlenrent.Afterthedatehereof,CompanyandAuthorityshalljointlyfileanappropriatemotionbeforethecourthavingjurisdictionovertheClassSettlement(ashereinafterdefined)toobtainamodificationofthefinalorderapprovingsuchClassSettlementwhichwouldpermitthepaymentinfullattheClosingofallamountsremainingunpaidwithrespecttosuchClassSettlement,discountedtosuchpresentvalueasAuthorityandCompanymayagreeandsuchcourtmayapprove.Asusedherein,"ClassSettlement"shallincantheclasssettlementwhichbecameeffectiveonJune28,1989andresolvedacivillawsuitagainstCompanybroughtunderthefederalRacketeerInfluencedandCorruptOrganizationsAct.(b)TaxCases.WithrespecttoalltaxcasesrelatingtopropertytaxesorpaymentsinlieuofpropertytaxesassessableagainstanyoftheassetsandpropertiesofCompanyasofthedatehereof,andothersimilartaxclaimsarisingpriortotheClosingDate(whichshallconstituteRetainedAssets),Companywillenterintoappropriatestandstillagreementsandmaintainthecurrentstatusofsuchcases;provided,however,ifanytaxingauthorityincreases,directlyorindirectly,orpurportstoincrease,directlyorindirectly,theassessedvalueofanyTransferredAsset(otherthaninrespectofpropertyadditionsorgeneralincreasesinassessments),thenCompanymaypursueanyjudicialremedyitdeemsadvisableinconnectiontherewith,Notwithstandingtheforegoing,ifanytaxingauthority,atanytimepriortotheClosing,assertsaclaimforpropertytaxesorpaymentsinlieuofpropertytaxeswhichCompanyreasonablybelievesisnotauthorizedbystatuteorassertsarighttovalueataxablepropertyinamethodotherthaninaccordancewithapplicableNewYorkStaterulesandregulations,thenCompanymaytakesuchactionsasitreasonablydetetminestobenecessaryoradvisabletoprotectits1interests,butshallnototherwisepursueitsclaimspendingtheClosingorthetertninationofthisAgreement.(c)PltaseIRebatcs.UpontheClosing,ParentwillimmediatelypayAuthority$15millioninrespectofthePhaseIjudgmentrelatingtotheShorehampropertytaxcasefordistributiontoratepayers.
Section7.9Expenses.AllcostsandexpensesincurredinconnectionwiththisAgreementandanyotherBasicAgreementandthetransactionscontemplatedhereby(including,withoutlimitation,anyterminationfeesandexpense,reimbursementspayableby.;CompanypursuanttotheExchangeAgreementortoitsofficersordirectorsinrespectofseverance,changeofconfrolorsimilaragreements)shallbepaidbythepartyincurringsuchexpenses.AnysuchcostorexpenseofCompanynotpaidorotherwisedischargedatorpriortotheClosingshallbepaidorreimbursedbyParentandtheTransfereeSubsidiariespursuanttotheParentLiabilitiesUndertakingandshallnotbeincludedintheClosingDateBalanceSheet.Section7.10FurtlterAssurances.Eachpartywill,andwillcauseitsSubsidiariesto,executesuchfurtherdocumentsandinstrumentsandtakesuchfurtheractionsasmayreasonablyberequestedbyanyotherpartyinordertoconsummatethetransactionscontemplatedherebyinaccordancewiththe,terinshereof.Section7,11PurchasePriceAllocation.,AtorpriortotheClosing,thepartiesshalljointlyprepareandagreetoanallocationforfederalincometaxpurposespursuanttoSection1060oftheCodeofthepurchasepricepayablebyParentinrespectofthetransferoftheTransferredAssets.Section7.12ReceiptofConsentsandApprovals.EachpartyagreestorespondpromptlytoanyrequestforanyconsentorapprovalfromanyotherpartycontemplatedbythisAgreementandanythirdpartyconsentorstatutoryapprovalrequiredhereunder.Eachpartyshalldesignaterepresentativeswhoshallbeauthorizedtoaddressanyrequestforanysuchconsentsorapprovals.Anyactofanysuchrepresentativewithrespecttosuchapprovalsandconsentsshallbebindinguponthepartythat'designatessuchrepresentative.IIISection7.13CertainOtherMatters.TheprovisionssetforthinSchedulesD(TaxMatters),E(EmploymentMatters)andF(FutureRights)attachedheretoareherebyincorporatedbyreferenceasifsetforthhereinintheirentirety.Section7.14OpinionsofCounsel.Inaddition,ParentandCompanyshalldelivertoAuthoritysuchopinionsofcounselforParentandCompanyastotheagreementstobeenteredintoinconnectionwiththetransactionscontemplatedbytheBasicAgreements,incustomaryformforfinancingtransactions,astothemattersoflawcoveredbytherepresentationsofParentandCompanyandtheTransfereeSubsidiariesintheBasicAgreements,similarmattersoflawwithrespecttosuchotheragreementsandastosuchothermattersoflawasAuthoritymayreasonablyrequest,togetherwithappropriatecertifiedauthorizingresolutionsandincumbencycertificates.ARTICLEVIIICONDITIONSSection8.1ConditionstoEachParty'sObligations.TherespectiveobligationsofeachpartytoeffectthetransactionscontemplatedbythisAgreementshallbesubjecttothesatisfactiononorpriortotheClosingDateofthefollowingconditions:(a)NoInjunction.NotemporaryrestrainingorderorpreliminaryorpermanentinjunctionorotherorderbyanyfederalorstatecourtpreventingconsummationofthetransactionscontemplatedbythisAgreementandtheotherBasicAgreementsshallhavebeenissuedandbecontinuingineffect,andthisAgreementandtheotherBasicAgreementsandthetransactionscontemplatedherebyandtherebyshallnothavebeenprohibitedunderanyapplicablefederalorstatelaworregulation.(b)StatutoryApprovals.TheParentRequiredStatutoryApprovalsandtheAuthorityRequiredStatutoryApprovalsshallhavebeenobtainedatorpriortotheClosingDate,suchapprovalsshallhavebecomeFinalD-22 Orders(asdefinedbelow)andsuchFinalOrdersshallnotimposetermsorconditionswhich,intheaggregate,wouldhave,orinsofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financialconditionorresultsofoperationsParent,whichwouldbemateriallyinconsistentwiththeagreementsofthepartiescontainedhereinorintheBasicAgreementsorwouldhave(or,insofarasreasonablycanbeforeseencouldhave)aMaterialAdverseEffect.A"FinalOrder"meansactionbytherelevantregulatoryauthoritywhichhasnotbeenreversed,stayed,enjoined,setaside,annulledorsuspended,withrespecttowhichanywaitingperiodprescribedbylawbeforethetransactionscontemplatedherebymaybeconsummatedhasexpired,andastowhichallconditionstotheconsummationofsuchtransactionsprescribedbylaw,regulationor,orderhavebeensatisfied.I(c)BasicAgreements.TherelevantpartiesshallhaveenteredintoeachotherBasicAgreement.(d)TaxRulings.Favo'rableprivateletterrulingsreasonablysatisfactorytoeachofthepartiesheretoshallhavebeenreceivedfromtheIRSwithrespecttotheapplicationofSection337(d)oftheCode.II(e)ConsutmnationofExcltangeTransaction.Either(i)thetransactionscontemplatedbytheExchangeAgreementshallhavebeenconsummated,(ii)theExchangeAgreementshallhavebeenterminatedor(iii)allconditionstosuchconsummationshallhavebeensatisfiedorwaivedinaccordancewiththetermsoftheExchangeAgreementandsuchtransactionswillbeconsummatedpromptlyaftertheClosing.(f)Financing.AuthorityshallhaveobtainedfinancinginanamountsufficienttoacquiretheCommonStockandthe/on-RedeemablePreferredStockandredeemtheRedeeinablePreferredStockandthebondsissuedinconnectiontherewithshallhavereceivedratingspursuanttoratingapplicationswhichcontemplatetheissuanceofupto$7.3billionforsuchpurposeandforthepurposeofrefinancingCompanydebt.eSection8.2ConditionstoObligations'fAuthorityandLIPASub.TheobligationsofAuthorityandLIPASubtoeffect'thetransactionscontemplatedbythisAgreementandtheotherBasicAgreementssliallbefurthersubjecttothesatisfactiononorpriortotheClosingDate,ofthefollowingconditions,exceptasmaybewaivedbyAuthorityorLIPASubinwritingpursuant.toSection9.5:(a)PerformanceofObligatioti'sofParentandContpany.EachofParentandCompanyshallhaveperformedinallmaterialrespectsitsagreementsandcovenantscontainedinorcontemplatedbythisAgreementandtheotherBasicAgreementsrequiredtobeperformedbyitatorpriortotheClosingDate.(b)Representationsand1Varranties.TherepresentationsandwarrantiesofParentandCompanysetforthinthisAgreementandtheotherBasicAgreementsshallbetrueandcorrect'(i)onandasofthedatehereofand(ii)onandasoftheClosingDatewiththesameeffectasthoughsuchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonlyasofaspecificdateortimeotherthanthedatehereofortheClosingDatewhichneedonlybetrueandcorrectasofsuchdateortime)exceptineachofcases(i)and(ii)forsuchfailuresofrepresentationsorwarrantiesto'etrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtherein)which,individuallyorinthe'aggregate,wouldnotbereasonablylikelytoresultinaMaterialAdverseEffect.(c)Closing'Certificates.AuthorityshallhavereceivedacertificatesignedonbehalfofParentandCompanybytlieChiefFifiancialOfficerofParent,dated'theClosingDate,totheeffectthat,tothebestofsuchOfficer'sknowledge,theconditionssetforthinSection8.2(a)andSection8.2(b)havebeensatisfied.(d)MaterialAdverseEffect.NoMaterialAdverseEffectshallhaveoccurredandthereshallexistnofactorcircumstancewhichisreasonablylikelytohaveaMaterialAdverseEffect.t(e)ParentRequiredConsents.,TheParentRequiredConsentsshallhavebeenobtained,exceptforthoseconsentsthefailureofwhichtoobtainwouldnothaveaMaterialAdverseEffect.D-23 (f)FormationofParentSubsidiaries.TheTransfereeSubsidiarieswillhavebeendulyformedandorganized.(g)TaxRulings.FavorableprivateletterrulingsreasonablysatisfactorytoAuthorityshallhavebeenreceivedfromtheIRSwithrespecttotheapplicationofSections103and115oftheCode.(h)RateSavingsDeternnnation.Authorityshallhavemadethefinalratesavingsdeterminationrequiredunderitsgoverning'statute.Section8.3ConditionstoObligationsofParentandCompany.'TheobligationsofParentandCompanytoeffectthetransactionscontemplatedbythisAgreementandtheotherBasic.Agreementsshallbefurthersubject'tothesatisfactiononorpriortotheClosingDateofthefollowingconditions,exceptasmaybewaivedbyParentandCompanyinwritingpursuanttoSection9.5:(a)PerformanceofObligationsofAuthorityandLIPASub.AuthorityandLIPASubshallhaveperformedinallmaterialrespectsitsag'reements'andcovenantscontainedinorcontemplatedbythisAgreementandtheotherBasicAgreementsrequiredtobeperformedatorpriortotheClosingDate.h(b)Representationsand1Varranties.TherepresentationsandwarrantiesofeachofAuthorityandLIPASubsetforthinthisAgreementandtheotherBasicAgreementsshallbetrueandcorrect(i)onandasofthedatehereofand(ii)onandasoftheClosingDatewiththesameeffectasthoughsuchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonlyasofaspecificdateortimeotherthanthedatehereofortheClosingDatewhichneedonlybetrueandcorrectasofsuchdateortime)exceptineachofcases(i)and(ii)forsuchfailuresofrepresentationsorwarrantiestobetrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtherein)which,individuallyorintheaggregate,wouldnotbereasonablylikelytoresultinaMaterialAdverseEffect.(c)ClosingCertificates.ParentshallhavereceivedacertificatesignedonbehalfofAuthoritybytheExecutiveDirectorofAuthority,datedtheClosingDate,totheeffectthat,tothebestofsuchExecutiveDirector'sknowledge,theconditionssetforthinSection8.3(a)andSection8.3(b)havebeensatisfied.(d)MaterialAdverseEffect.NoMaterialAdverseEffectshallhaveoccurredandthereshallexistnofactorcircumstancewhichisreasonablylikelytohaveaMaterialAdverseEffect.ARTICLEIXTERMINATIONANDAMENDMENTSection9.1Tertnination.ThisAgreementmaybeterminatedpriortotheClosingDate:(a)bymutualwrittenconsentoftheBoardofDirectorsofCompanyandtheBoardofTrusteesofAuthority;(b)byeitherParentandCompany,ontheoneliand,orAuthorityandLIPASub,ontheotherhand,iftheClosingshallnothaveoccurredonorbeforeAugust.31,1998(the"Initial.TerminationDate");provided,however,thattherighttoterminatetheAgreementunderthisSection9.1(b)shallnotbeavailabletoanypartywhosefailuretofulfillanyobligationunderthisAgreementhasbeenthecauseof,orresultedin,thefailureoftheEffectiveTinietooccuronorbeforethisdate;andprovided,fiirther,thatifontheInitialTertninationDatetheconditionstotheClosingsetforthinSections8.1(b),8.1(d)or8.2(e)shallnothavebeenfulfilledbutallotherconditionstotheClosingshallbefulfilledorshallbecapableofbeingfulfilled,thentheInitialTerminationDateshallbe,extendedtoApril28,1999.(c)byParentorCompany,upontwodays'riornoticetoAuthority,if,asa'resultofatenderofferoranywrittenofferorproposalwithrespecttoamerger,saleofamaterialportionofitsassetsorotherbusinesscombinationmadebyapartyotherthanAuthorityoranyofitsaffiliatespriortoCompanyhavingobtainedCompanyShareholderApproval,theBoardofDirectorsofCompanydeterminesingoodfaiththattheirfiduciaryD-24 obligationsunderapplicablelawrequirethatsuchtenderofferorotherwrittenofferorproposalbeaccepted;provided,hoivever,that(i)theBoardofDirectorsofCompanyshallhavebeenadvisedinawrittenopinionofoutsidecounselthatnotwithstandingabindingcommitmenttoconsummateanagreementofthenatureofthisAgreemententeredintointheproperexerciseoftheirapplicable-fiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbyAuthorityinnegotiationsenteredintopursuanttoclause(ii)below,suchfiduciarydutieswouldalsorequirethedirectorstoreconsidersuchcommitment'asaresultofsuchtenderofferorotherwrittenofferorproposal;and(ii)priortoanysuchtermination,Companyshall,andshallcauseitsrespectivefinancialandlegaladvisorsto,negotiatewithAuthoritytomakesuchadjustmentsinthetermsandconditionsofthisAgreemcntaswouldenable,Companytoproceedwiththetransactionscontemplatedhereinonsuchadjustedterms;(d)byAuthority,bywrittennoticetoParentandCompany,if(i)thereexistbreachesoftherepresentationsandwarrantiesofParentandCompanymadehereinasofthedatehereofwhichbreaches,individuallyorintheaggregate,wouldorwouldbereasonablylikelytoresult,inaMaterialAdverseEffect,andsuchbreachessliallIiothavebeenremediedwithin20daysafterreceiptbyParentandCompanyofnoticeinwritingfromAuthority,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)ParentorCompanyshallhavefailedtoperformandcomplywith,inallmaterialrespects,itsagreementsandcovenantsliereunderorunderanyotherBasicAgreementandsuchfailuretoperformorcomplyshallnothavebeenremediedwithin20daysafterreceiptbyParentandCompanyofnoticeinwritingfromAuthority,specifyingthenatureofsuchfailureandrequestingthatitberemedied;or(iii)theBoardofDirectorsofParentoranycommitteethereof(A)shallwithdrawormodifyinanymanneradversetoAuthorityorLIPASubitsapprovalorrecommendationofthisAgrccmentortheotherBasicAgreemcnts,(B)shallfailtoreaffirmsuchapprovalorrecommendationuponAuthority'sorLIPASub'srequest,or(C)shallresolvetotakeanyoftheactionsspecifiedinclause(A)or(B);(e)byParentorCompany,bywrittennoticetoAuthorityandLIPASub,if(i)thereexistmaterialbreachesoftherepresentationsandwarrantiesofAuthorityandLIPASubmadehereinasofthedatehereofwhichbreaches,individuallyorintheaggregate,wouldorwouldbereasonablylikelytoresultinaMaterialAdverseEffect,andsuchbreachesshallnothavebeenremediedwithili20daysafterreceiptbyAuthority'fnoticeinwritingfromParent,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)Authorityshallhavefailedtoperformandcomplywith,inallmaterialrespects,itsagreementsandcovenantshereunderorunderanyotherBasicAgreements,andsuchfailuretoperformorcomplyshallnothavebeenremediedwithin20daysafterreceiptbyAuthorityorLIPASubofnoticeinwritingfromParent,specifyingthcnatureofsuchfailureandrequestingthatitberemedied,or(iii)theBoardofTrusteesofAuthorityoranycommitteethereof(A)shallwithdrawormodifyinanymanneradversetoParentorCompanyitsapprovalorrecommendationofthisAgreementoranyoftheotherBasicAgreemcnts,(B)shallfailtoreaffirmsuchapprovalorrecommendationuponParent'sorCompany'srequest,or(C)shallresolvetotakeanyoftheactionsspecifiedinclause(A)or(B);or(f)byeitherParentandCompany,ontheonehand,orAuthorityandLIPASub,ontheotherhand,bywrittennoticetotheotherparty,ifanyoftheconditionsofeitherparty'sobligationtoeffectthetransactionscannotbesatisfied.Section9.2E~jjecrofTenninarioii.IntheeventoftheterminationofthisAgreemcnt,theprovisionsinthisSection9.2,inSections7.7,7.9andArticleX(andSection11.7totheextentitisapplicabletosuchSectionsandArticle)shallsurvivetheterminationandnopartyshallberelievedofanyliabilityforanybreachofthisAgreement.Section9.3Survival.AllofthecovenantsintheSchedulesattachedheretoshallsurvivetheEffectiveTime.AllrcprescntationsandwarrantiesinthisAgreementshallnotsurvivetheEffectiveTime,exceptasotherwiseprovidedinthisAgreemcnt.Section9.4Amendment.ThisAgreeincntmaybeamendedatanytimebythepartieshereto,butonlybytaninstrumentinwritingsignedbyeachofthcpartieshereto;provided,however,thatAuthorityandLIPASubshallnotunreasonably,withholdtheirconsenttoanyarnendmcntproposedbyCompanywithrespecttoSections2.1(b)and(c).D-25 Section9.5Extensioir;lVaiver.AtanytimepriortotheClosing,thepartiesheretomay(a)extendthetimeforthe'performanceof'anyoftheobligationsorotheractsofthepartieshereto,(b)waiveanyinaccuraciesintherepresentationsandwarrantiescontainedhereinorinanydocumentdeliveredpursuantheretoand(c)waivecompliancewithanyoftheagreementsor,totheextentpermittedbyapplicablelaw,conditionscontainedherein.Anyagreementonthepartofapartyheretotoanysuchextensionorwaivershallbevalidonlyifsetforthinawritteninstrumentsignedbysuchparty.ARTICLEXSTANDSTILLSection10.1'tandstill.IntheeventAuthorityterminatesthisAgreement,Authorityanditsaffiliateswillnot(andwillnotassist.orencourageothersto),directlyorindirectly,withoutthepriorconsentofParent.andCompany,priortothedatethat'issixmonthsafterthedateoftermination,ifany,ofthisAgreementbyAuthoritypursuanttoSection9.1:(a)acquireoragree,offer,seekorproposetoacquirc,orcausetobeacquired,ownership(including,butnotlimitedto,beneficialownershipasdefinedinRule13d-3undertheExchangeActofanyofCompany's(oranysuccessor's)assetsorbusinessesoranysecuritiesissuedbyCompany(oranysuccessor)oranyrightsoroptionstoacquiresuchownership,includingfromathirdparty;(b)condemn'ragree,offer,seekorproposetocondemn,orcausetobecondemned,anyofCompany's(oranysuccessor's)assetsorbusinessesoranysecuritiesissuedbyCompany(oranysuccessor);(c)make,orinanywayparticipate,inanysolicitationofproxiesorconsentswithrespecttoanysecuritiesofParentorCompanywhichare,ormaybe,entitledtovoteintheelectionofParent'sorCompany'sdirectors,asthecasemaybe("VotingSecurities"),becomea"participant"inany"electioncontest"(assuchtermsaredefinedorusedinRule14a-11undertheExchangeAct)withrespecttoParentorCompany;orseektoadvise,encourageorinfiuenceanypersonorentitywithrespecttothevotingofanyofParent'sorCompany'sVotingSecurities;ordemandacopyofParent'sorCompany'sstockledger,listofParent'sorCompany'sshareholdersorotherbooksandrecords;orcallorattempttocallanymeetingoftheshareholdersofParentorCompany;or'd)enterintoanydiscussions,negotiations,arrangementsorunderstandingswithanythirdpartyoragencywithrespecttoanyofthemattersdescribedinclause(a),(b)'or(c)ofthisSection10.1.nARTICLEXIMISCELLANEOUS'ection11.1CertainDefinitions.ForallpurposesofthisAgreemcnt,except'asotherwiseexpresslyprovidedorunlessthecontextotherwiserequires:(a)"affiliate"or"associate"of-'anyspecifiedpersonmeansanyotherpersondirectlyorindirectlycontrollingorcontrolledbyorunderdirectorindirectcommoncontrolwithsuchspecifiedperson.Forthepurposesofthisdefinition,"control"whenusedwithrespecttoanyspecifiedpersonmea'nsthepowertodirectthemanagementandpoliciesofsuchperson;directlyorindirect1y,whetherthroughtheownershipofvotingsecurities,bycontractorotherwise;andtheterms"controlling"and"controlled"havemeaningscorrelativetotheforegoing;(b)"businessday"meansanyday(otherthanaSaturdayoraSunday)onwhichbankinginstitutionsinNewYorkCity,NewYorkarenotauthorizedorobligatedbylaworexecutiveordertoclose;and(c)"person"meansanyindividual,corporation,firms,companies,trusts,businesstrusts,legalentitiesgeneralpartnership,limitedpartnership,jointventure,association,'joint-stockcompany,trust,limitedliabilitycompany,unincorporatedorganizationorgovernmentoranyagencyorpoliticalsubdivisionthereof.
Section11.2Notices.Allnoticesandothercommunicationshereundershallbeinwritingandshallbedeemedgivenuponreceiptif.deliveredpersonallyormailedbyregisteredorcertifiedmail(returnreceiptrequested)orovernightdeliveryservicetothepartiesatthefollowingaddresses(oratsuchbtheraddressforapartyasshallbespecifiedbylikenotice)(a)iftoAuthorityorLIPASub,toLongIslandPowerAuthority333EarleOvingtonBoulevardSuite403Uniondale,NewYork11553Telephone:(516)222-7700Attention:ExecutiveDirectorewithacopyto:RichardKesselChairmanoftheBoardLongIslandPowerAuthority333EarleOvingtonBlvd.,Suite403Uniondale,NewYork11553PatrickFoyeDeputyChairmanoftheBoardLongIslandPowerAuthority333EarleOvingtonBlvd.,Suite403Uniondale,NewYork11553Winthrop,Stimson,Putnam&RobertsOne.BatteryParkPlazaNewYork,NewYork10004Telephone:(212)858-1000Attention:StephenR.Rusmisel(b)iftoParentorCompany,to:LongIslandLightingCompany175EastOldCountyRoadHicksville,NewYork11801Telephone:(516)545-4800Attention:ChiefExecutiveOfficerwithacopyto:Kramer,Levin,Naftalis&Frankel919ThirdAvenueNewYork,NewYork10022Telephone.'(212)715-9100Attention:ThomasE.ConstanceSection11.3DescriptiveHeadings.ThedescriptiveheadingshereinareinsertedforconvenienceonlyandarenotintendedtobepartofortoaffectthemeaningorinterpretationofthisAgreement.Section11.4Counterparts.ThisAgreementmaybeexecutedintwoormorecounterparts,allofwhichshallbeconsideredoneandthesameagreement.D-27 Section11.5EntireAgreement;Assigttntent.ThisAgreement,includingtheannexesandexhibitsheretoandthedocuments,schedules(including,withoutlimitation,theDisclosureSchedule),certificates,andinstrumentsreferredtohereinconstitutethe'entireagreement,andsupersedeallprioragreementsandunderstandings,bothwrittenandoral,amongthepartieswithrespecttothesubjectmatterhereof.ThisAgreementshallnotbeassignedbyoperationoflaworotherwise.Section11.6GovenungLaiv.ThisAgreementshallbegovernedandconstruedinaccordancewiththelawsofthcStateofNewYork,withoutregardtoanyapplicableprinciplesofconllictsoflaw.ExceptasotherwiseprovidedinSection11.10,anyactionarisingoutoforrelatingtothisAgreementshallbebroughtinNewYorkStateCourtorFederalDistrictCourt.Section11.7'pecificPerfonnance.ThepartiesheretoagreethatifanyoftheprovisionsofthisAgreementwercnotperformedinaccordancewiththeirspecifictermsorwereotherwisebreached,irreparabledamagewouldoccur,noadequateremedyatlawwouldexistanddamageswouldbedifficulttodetermine,andthatthepartiesshallbeentitledtospecificperformanceofthetermshereof,inadditiontoanyotherremedyatlaworequity.Section11.8PartiesinInterest.JhisAgreementshallbebindinguponandinuresolelytothebenefitofeachpartyheieto,andnothinginthisAgreemcnt,expressorimplied,isintendedtoorshallconferuponanyotherpersonorpersonsanyrights,benefitsorremediesofanynaturewhatsoeverunderorbyreasonofthisAgreement.Section11.9Severability.ThisAgreementshallbedeemedseverable;theinvalidityorunenforceabilityofanytermorprovisionofthisAgreementshallnotaffectthevalidityorenforceabilityofthisAgreementorofanyothertermhereof,whichshallremaininfullforceandeffect.Section11.10AlternativeDisputeResolution.(a)AnydisputearisingoutoforrelatingtoanycovenantcontainedinanyScheduletothisAgreementshall~beresolvedinaccordancewiththeproceduresspecifiedinthisSection11.10,whichshallconstitutethesoleand~exclusiveproceduresfortheresolutionofsuchdisputes,excepttotheextentanysuchScheduleexpresslyprovidesanotherdisputeresolutionprocess.(b)Thepartiesagreetousetheirbesteffortstosettlepromptlyanydisputesor.claimsarisingoutoforrelatingtothisAgreementthroughnegotiationconductedingoodfaithbetweenexecutiveshavingauthoritytoreachsuchasettlement.Ifeitherpartyheretoshallsorequest,thepartiesshallmutuallyagreeonthcselectionofamediatorwhoshallmediatethenegotiations,whichshallbenon-binding.AllnegotiationsandmediationdiscussionspursuanttothisparagraphareconfidentialandshallbctreatedascompromiseandsettlementnegotiationsforpurposesofFederalRuleofEvidence408andapplicablestaterulesofevidence.(c)AnydisputearisingoutofrelatingtoanyScheduletothisAgreementorthebreach,termination,orvaliditythereof,whichdisputehasnotbeenresolvedbyanegotiationormediationasprovidedinpanagraph(b)hereofwithin60daysfromthedatethateithernegotiationsormediationshallhavebeenfirstrequested,shallbesettledbybindingarbitrationbeforethreeindependentandimpartialarbitratorsinaccordancewiththethencurrentrulesoftheAmericanArbitrationAssociation,excepttotheextentsuchrulesareinconsistentwithanyprovisionofthisAgreement,inwhichcasetheprovisionsofthisAgreementshallbefollowed,andcxccptthatthearbitrationsunderthisAgreementshallnotbeadministeredbytheAmericanArbitrationAssociation.TheArbitratorsshallbe(i)independentofthepartiesanddisinterestedintheoutcomeofthedispute,(ii)attorneys,accountants,investmentbankers,commercialbankersorengineersfamiliarwithcontractsgoverningtheoperationofelectricutilityassets,and(iii)qualifiedinthesubjectareaoftheissueindispute.Forpurposesoftheprecedingsentence,residentsofLongIslandshallnotbe,.consideredinterestedmerelybyvirtueoftheirresidence.TheArbitratorsshallbcchosenbytheparties,witheachpartychoosingonearbitratorandthosearbitratorschoosingthethirdarbitrator.JudgmentontheawardrenderedbytheArbitratorsmaybeenteredianycourtintlieStateofNewYorkhavingjurisdictiotithereof.IfeitherpartyrefusestoparticipateingoodfaithD-28 inthenegotiationsormediationproceedingsdescribedinparagraph(b)hereof,theothermayinitiatearbitrationatanytimeaftersuchrefusalwithoutwaitingfor,theexpirationofthe60day,period.ExceptasprovidedinParagraph(d)hereofrelatingtoprovisionalremedies,theArbitratorsshalldecideallaspectsofanydisputebroughttothemincludingattorneydisqualificationandthetimelinessofthemakingofanyclaim.(d)Eitherparty'may,withoutprejudicetoanynegotiation,mediation,orarbitrationprocedures,proceedinanycourtofcompetentjurisdictiontoseekprovisionaljudicialreliefif,insuchparty'ssolediscretion,suchactionisnecessarytoavoidimminentirreparable'armortopreservethestatusquopendingtheconclusionofthedisputeproceduresspecifiedinthisSection11.10.(e)TheArbitratorsshallhavenoauthoritytoawardpunitivedamagesoranyotherdamagesasidefromtheprevailingparty'sactualandconsequentialdamages>plusinterestthereonattheBaseInterestRate(asdefinedintheManagementServicesAgreement)accruedfromthedatesuchdamageswereincurred.TheArbitratorsshallnothavetheauthoritytomakeanyruling,finding,orawardthatdoesnotconformtothetermsandconditionsofthisAgreement.(f)TheArbitratorsmayawardreasonableattorneys'eesandcostsofthearbitration.(g)AnyclaimunderanySchedule.tothisAgreementshallbetime-barred,regardlessofanystatuteoflimitationsperiodsprovidedbystateorfederallaw,unlessnegotiationormediationwithrespecttheretoiscommencedwithrespecttosuchclaimwithintwelvemonthsafterthebasisforsuchclaimhasbeendiscovered.(h)TheArbitratorsshallhavethediscretiontoorderapre-hearingexchangeofinformationbytheparties,including,withoutlimitation,theproductionofrequesteddocuments,theexchangeofsummariesoftestimonyofproposedwitnesses,andtheexaminationbydepositionofparties.Eachofthepartiesagrccs'toproduceallesuchrequesteddocumentsandtodelivertotheotheracertificate,executedbyaseniorexecutiveofsuchparty,statingthatallsuchdocumentshavebeensoproduced.(i)ThesiteofanyarbitrationproceedingbroughtpursuanttothisAgreementshallbeMineolaorHauppauge,NewYork.(I)TheArbitrators'wardshallbeinwritingandshallsctforththefactualand.legalbasesfortheaward.D-29 INWITNESSWHEREOF,thepartiesheretohavecausedthisAgreementtobesignedbytheirrespectiveofficersthereuntodulyauthorizedasofthedatefirstwrittenabove.LONGISLANDLIGHTINGCOMPANYBy:Name:Dr.WilliamJ.CatacosinosTitle:ChiefExecutiveOfficerLONGISLANDPOWERAUTHORITYBy:Name:RichardM.KesselTitle:ChairmanBy:Name:PatrickFoyeTitle:DeputyChairmanLIPAACQUISITIONCORP.By:Name:Title:AscontemplatedbySection1.4hereof,theundersignedhasexecutedanddt;liveredthisAgreementasParent:BLHOLDINGCORPBy:Name:Title:D-30 InvestmentBankingANNEXEMerrillLynchCorporateandInstitutionalClientGroupWorldFinancialCenterNorthTowerNewYork,NewYork10281-13272124491000June27,1997BoardofDirectorsTheBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn,NewYork11201-3850LadiesandGentlemen:TheBrooklynUnionGasCompany(the"Company"or"BrooklynUnion")andLongIslandLightingCompany("Lilco")haveenteredintoanAmendedandRestatedAgreementandPlanofExchangeandMergeredatedasofJune26,1997(the"Agreement")pursuanttowhich,amongotherthings,(i)awholly-ownedsubsidiaryofaholdingcompanytobeformedpursuanttotheAgreement("Newco")willbemergedwithandintotheCompany(the"BrooklynUnionMerger"),asaresultofwhicheachissuedandoutstandingshareoftheCompany',scommonstock,parvalue$0.338pershare(the"CompanyShares"),otherthanDissentingShares(asdefinedintheAgreement),willbeconvertedintotherighttoreceiveonenewlyissuedshare(the"ExchangeRatio")ofthecommonstockofNewco,parvalue$.01'pershare(the"NewcoShares"),and(ii)eachissuedandoutstandingshareofLilco'scommonstock,parvalue$5.00pershare("LilcoShares"),otherthanDissentingShares,willbeexchanged(the"LilcoBindingShareExchange",andtogetherwiththeBrooklynUnionMerger,the"CombinationTransactions")for0.803newlyissuedNewcoShares,subjecttoadjustmentto0.880newlyissuedNewcosharesifth'eLIPATransactionrefcrrcdtobelowisconsummated.ThetermsandconditionsoftheCombinationTransactionsaremorefullysetforthintheAgreement.iYouhaveaskeduswhether,inouropinion,theExchangeRatioisfairtotheholdersoftheCompanySharesfromafinancialpointofview.Inarrivingattheopinionsetforthbelow,wehave,amongotherthings:(I)ReviewedtheCompany'sAnnualReports,Forms10-KandrelatedfinancialinformationforthethreefiscalyearsendedSeptember30,1996andtheCompany'sForms10-QandtherelatedunauditedfinancialinformationforthequarterlyperiodsendingDecember31,1996andMarch31,1997;(2)ReviewedLilco'sAnnualReports,Forms10-KandrelatedfinancialinformationforthethreefiscalyearsendedDecember31,1996andLilco'sForm10-QandtherelatedunauditedfinancialinformationforthequarterlyperiodendingMarch31,1997;hfl(3)Reviewedcertaininformation,includingfinancialforecasts,relatingtothebusiness,earnings,cashflow,assetsandprospectsoftheCompanyandLilco,furnishedtousbytheCompanyandLilco; Mevrilllhyaelh(4)ConducteddiscussionswithmembersofseniormanagementoftheCompanyandLilcoconcerningtheirrespectivebusinesses,regulatoryenvironments,prospectsandstrategicobjectives;(5)ReviewedthehistoricalmarketpricesandtradingactivityfortheCompanySharesandLilcoSharesandcomparedthemwiththatofcertainpubliclytradedcompanieswhichwedeemedtobereasonablysimilartotheCompanyandLilco,respectively;(6)ComparedtheresultsofoperationsoftheCompanyandLilcowiththatofcertaincompanieswhichwedeemedtobereasonablysimilartotheCompanyandLilco,respectively;(7)ComparedtheproposedfinancialtermsofthetransactionscontemplatedbytheAgreementwiththefinancialtermsofcertainothermergersandacquisitionswhichwedeemedtoberelevant;(8)ConsideredthepotentialproformaimpactoftheCombinationTransactions,includingontheCoinpany'scapitalizationratiosandearmngs,dividendsandbookvaluepershare;(9)ReviewedtheAgreement;(10)ReviewedtheAgreemcntandPlanofMerger,datedasofJune26,1997,byandamongBLHoldingCorp.,Lilco,LongIslandPowerAuthority("LIPA")andLIPAAcquisitionCorp.(the"LIPAAgreemcnt")providingfor,theacquisitionbyLIPAofcertainspecifiedassetsandpropertiesofLilco(the"LIPATransaction");and(11)Reviewedsuchotherfinancialstudiesandanalysesandperformedsuchotherinvestigationsandtookintoaccountsuchothermattersas,wedeemednecessary,includingourassessmentofgeneraleconomic,marketandmonetaryconditions.Inpreparingouropinion,wehaveassumed,withyourconsent,thattheLIPATransaction,ifconsummated,willbeconsummatedonthetermscontainedintheLIPAAgreemcnt.Inpreparingouropinion,wehavealsoassumedandreliedontheaccuracyandcompletenessofallinformationsuppliedorotherwisemadeavailabletousorpubliclyavailableordiscussedwithorreviewedbyorforusandwehavenotassumedanyresponsibilityforindependently,verifyingsuchinformationorundertakenanindependentevaluationorappraisalofanyoftheassetsorliabilitiesoftheCompanyorLilco.In'addition,wehavenotconductedanyphysicalinspectionofthepropertiesorfacilitiesoftheCompanyorLilco.Withrespecttothefinancialforecastsfurnishedtoordiscussedwithu'sbytheCompanyandLilco,wehaveassumedthattheyhavebeenreasonablypreparedandrefiectthebestcurrentlyavailableestimatesandjudgmentoftheCompany',sorLilco'smanagementastotheexpectedfuturefinancialperformanceoftheCompanyorLilco,asthecasemaybe,andastotheexpectedfutureprojectedoutcomesofvariouslegal,regulatoryandothercontingencies.Inthatregard,Lilco'sfinancialforecastsforthecaseinwhichLilcoretainsownershipofitselectrictransmissionanddistributionsystem,substantiallyallofitselectricregulatoryassetsandcertainotherinterestsandtheLIPATransactionisnotconsummated,assume;amongotherthings,(i)thatLilcowillbesubjecttonoreductioninelectricratesforthefive-yearperiodendingDecember31,2002,(ii)thatI.ilcowillfullyrecoverinitscurrentandfutureelectricratesallofitscostsreferredtointheNotestoFinancialStatementsofLilcofortheyearendedDecember31,1996,associatedwiththetransferoftheShorehamNuclearPowerStationtoLIPAanddecoimnissioningthereof,ontermsnolessfavorabletoLilcothanthetermscurrentlyineffect,and(iii)thattherewillbenoadversechangestoLilcoingeneralcompetitiveconditionsforthetransmissionandsaleofelectricityinthe,areasservicedbyLilcothroughtheconstructionofnewtransmissionlinestoLongIslandorotherwise.WehaveassumedthattheCombinationTransactionswillbeaccountedforasapoolingofinterestsinthecasewheretl,eLIPATransactionis,notconsummatedandthattheBrooklynUnionMergerwillqualifyasatax-freereorganizationforU.S.federalincometaxpurposes.
MerrillLyae1hOuropinionisnecessarilybaseduponmarket,economicandotherconditionsastheyexistandcanbeevaluatedasofthedatehereof.WehaveassumedthatinthecourseofobtainingthenecessaryregulatoryorotherconsentsorapprovalsfortheCombinationTransactionsandtheLIPATransaction,norestrictions,includinganydivestiturerequirementsoramendmentsormodifications,willbeimposedthatwillhaveamaterialadverseeffectonthecontemplatedbenefitsoftheCombinationTransactionsortheLIPATransaction.Inconnectionwiththepreparationofthisopinion,wehavenotbeenauthorizedbytheCompanyortheBoardofDirectorstosolicit,norhavewesolicited,third-partyindicationSofinterestfortheacquisitionofalloranypartoftheCompany.WeexpressnoopinionastowliatthevalueoftheNewcoSharesactuallywillbewhenissuedtotheholdersoftheCompanySharesuponconsummationoftheCombinationTransactionsorwhatthevalueoftheCompanySharesorLilcoShareswillbebetweenthedatehereofandtheconsummationoftheCombinationTransactions.ThisopinionisaddressedtotheBoardofDirectorsoftheCompanyanddoesnotconstitutearecommendationtoanyshareholdersastohowsuchshareholdersshouldvoteontheproposedCombinationTransactions.WehaveactedasfinancialadvisortotheCompanyinconnectionwiththeCombinationTransactionsandwillreceiveafeeforourservices,asignificantportionofwhichiscontingentuponconsummationoftheCombinationTransactions.Wehave,inthepast,providedfinancialadvisoryandfinancingservicestotheCompanyandfinancingservicestoLilcoandhavereceivedfeesfortherenderingofsuchservices.Intheordinarycourseofourbusiness,wemayactivelytradethesecurities,ofthcCompanyorLilcoforourownaccountandforthcaccountsofcustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.Onthebasisof,andsubjecttotheforegoingandothermatterswhichwedeemrelevant,weareoftheopinionthat,asofthedatehereof,the'ExchangeRatioofoneNcwcoShareforeachCoinpanyShareisfairtotheholdersoftheCompanySharesfromafinancialpointofviewiftheLIPATransactionisconsummated,underwhichcircumstanceseachLilcoSharewillbeexchangedfor0.880NewcoShares,andiftheLIPATransactionisnotconsumntated,underwhichcircumstanceseachLilcoSharewillbcexchangedfor0.803NewcoShares.Verytrulyyours,MERRILLLYNCH,PIERCE,FENNERASMITHINCORPORATED
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ANNEXFFDecember291996TheBoardofDirectorsLongIslandLightingCompany175EastOldCountryRoadHicksvillq,NY11801GentlemenandLadies:EYouhaverequestedouropinionastothefairness,fromafinancialpointofview,totheholders(the"Stockholders")ofcommonstock,parvalue$5.00pershare("CompanyCommonStock"),ofLongIslandLightingCompany(the"Company")oftheConversionRatiosetforthintheBindingShareExchangeAgreement,datedasofDecember29,1996(the"Agreement"),byandamongBrooklynUnionGasCompany("BrooklynUnion"),LongIslandLightingCompany,andNYECO,anewlycreatedcorporation("NYECO"),pursuanttowhichBrooklynUnionandLongIslandLightingCompanyshallcombineandbecomewhollyownedsubsidiariesofNYECO(the"Transaction").IntheeventtheTransactionisconsummated,eachissuedandoutstandingshareofCompanyCommonStock,otherthansharesofCompanyCommonStocktobecanceledpursuanttheAgreement,shallbeconvertedintothe'ighttoreceive.803(the"ConversionRatio")sharesofNYECOcommonstock,$.01parvalue,andeachshareofBrooklynUnioncommonstock,otherthansharesofBrooklynUnioncommonstocktobecanceledpursuanttotheAgreement,shallbeconvertedintotherighttoreceiveonesharcofNYECOcommonstock.Inarrivingatouropinion,wehave,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtotheCompanyandBrooklyn,Union,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtousbytheCompanyandBrooklynUnionrelatingtothebusinessandprospectsoftheCompanyandBrooklynUnion,(iii)conducteddiscussionswithmembersofthesenior'managementoftheCompanywithrespecttothebusinessandprospectsoftheCompany,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinesswebelievetobegenerallycomparabletothoseoftheCompanyandBrooklynUnion,(v)reviewedthehistoricalmarketpricesandtradingvolumesoftheCompanyCommonStockandthecommonstockofBrooklynUnion,(vi)comparedtheproposedfinancialtermsoftheTransactionwiththefinancialtermsofcertainothermergerswhichwebelievetobegenerallycomparabletotheTransaction,(vii)analyzedtherespectivecontributionsintermsofrevenue,earnings,cashflowandcommonequityoftheCompanyandBrooklynUniontothecombinedcompany,andtherelativeownershipofNYECOaftertheTransactionbythecurrentholdersoftheCompanyCommonStockandBrooklynUnioncommonstock,(viii)consideredtheproformaeffectoftheTransactionontheCompany'scapitalizationratios,earnings,cashflowandbookvaluepershare,(ix)reviewedtheAgreement,and(x)conductedsuchotherfinancialstudies,analysesandinvestigations,andconsideredsuchotherinformation,aswedeemednecessaryorappropriate.Inconnectionwithourreview,wehavenotindependentlyverifiedanyoftheforegoinginformation'andhave,withyourconsent,reliedonitsbeingcompleteandaccurateinallmaterialrespects.Inaddition,wehavenotmadeany'independentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)ofheCompanyorBrooklynUnionoranyoftheirrespectivesubsidiaries,norhavewebeenfurnishedwithanysuchevaluationorappraisal.Withrespecttothefinancialforecastsreferredtoabove,wehave,atyourdirection,assumedthattheyhavebeenreasonablypreparedonbasesreflectingthebestcurrentlyavailableestimatesand judgmentsoftheCompany'sandBrooklynUnion'smanagementastothefuturefinancialperformanceofeachcompany.OurreviewofBrooklynUnion'scurrentandanticipatedfutureoperations,financialconditionandprospectswas,withyourconsent,basedentirelyonpublicinformation(exceptforcertainlimitedinternalprojectionsreferredtoabove),andwasthereforelimitedinscope.WehavenothelddiscussionswithanymembersofBrooklynUnion'sseniormanagement.Withyourconsent,wehaveassumedthattheTransactionwillbetreatedastax-freetoboththeCompanyandtheStockholdersandwillbeaccountedforasapoolingofinterests.Further,ouropinionisbasedoneconomic,monetaryandmarketconditionsexistingonthedatehereof.Dillon,Read&Co.Inc.hasactedasfinancialadvisortotheBoardofDirectorsoftheCompanyinconnectionwiththeTransaction,forwhichwewillreceiveafee.Intheordinarycourseofbusiness,wehavetradedthedebtandequitysecuritiesoftheCompanyandBrooklynUnionforourownaccountandfortheaccountsofourcustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.Inrenderingthisopinion,weexpressnoviewastotherangeofvaluesatwhichNYECOcommonstockmaytradefollowingconsummationoftheTransaction,andwearenotmakinganyrecommendationtotheStockholderswithrespecttotheadvisabilityofdisposingoforretainingsuchNYECOcommonstockfollowingtheTransaction.Baseduponandsubjecttotheforegoing,weareoftheopinion,asofthedatehereof,thattheConversionRatioisfair,fromafinancialpointofview,totheStockholders.Verytrulyyours,DILLON,READ&CO.INC.
June26,1997TheBoardofDirectorsLongIslandLightingCompany175EastOldCountiyRoadHicksville,NY11801GentlemenandLadies:Youhaverequestedouropinionastothefairness,fromafinancialpoin'tofview,totheLongIslandLightingCompany(the"Company")oftheConsiderationtobereceivedpursuanttotheAgreementandPlanofMerger,datedasofJune26,1997(the"LIPAAgreement"),byandainongBLHoldingCorp.("Parerit"),theCompany,theLongIslandPowerAuthority("LIPA"),andLIPAAcquisitionCorp.("LIPASub.")pursuanttowhichLIPASub.willmergewithandintotheCompany(the"LIPATransaction").PriortotheLIPATransaction,theCompanywillcompleteareorganizationpursuanttowhichitsnaturalgasandelectricgenerationbusinesses,andcertainotherassets,willbedistributedtoanewlycreatedsubsidiaryorsubsidiariesofParent.PursuanttotheL1PATransaction,LIPAwillpaytoParent$2,497,500,000incash(the"Consideration")forthestockoftheCompany,whichwillowntheCompany'selectrictransmissionanddistributionbusiness("T&DBusiness")andcertainotherassetsoftheCompany,includingregulatoryassetsofapproximately$6.6billion(the"RegulatoryAssets")andtheCompany's18%interestintheNineMilePointTwonuclearplant("NuclearAssets").TheCompanywillalsohaveapproximately$3.9billionofdebtandpreferredstockoutstandingandbookvalueofapproximately$2.5billionatthetimeofitsmergerwithLIPASub.PursuanttotheLIPATransaction,LIPAandParent(orsubsidiariesthereof)willenterintoancillaryagreementspursuanttowhichParent(orsubsidiariesthereof)willprovideelectricitytoLIPAandcontinuetomanageessentiallyallaspectsoftheT&DBusiness("BasicAgreements").Inarrivingatouropinion,wehave,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtotheCompany,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtousbytheCompany,includinghistoricalandprojectedfinancialinformationfortheT&DBusiness,theNuclearAssetsandtheRegulatoryAssets,(iii)conducteddiscussionswithmembersoftheseniormanagementoftheCompanywithrespecttothebusinessandprospectsoftheCompany,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinesswebelievetobegenerallycomparabletotheT&DBusiness,(v)comparedpubliclyavailablefinancialandstockmarketdataforcertainutilitieswithrelativelyhighconcentrationsofnucleargenerationtocertainutilitieswithlittleornonucleargeneration,(vi)reviewedthefinancialtermsofcertaintransactionsinvolvingtransmissionanddistributionassets,(vii)consideredtheproformaeffectoftheLIPATransactionontheParent'sfinancialcondition,(viii)reviewedtheLIPAAgreement,(ix)consideredthefinancialtermsoftheBasicAgreements,(x)consideredtheeffectoftheLIPATransactionontheCompany'spendingshareexchangeagreementwithTheBrooklynUnionGasCompany,and(xi)conductedsuchotherfinancialstudies,analysesandinvestigations,andconsideredsuchotherinformation,aswedeemednecessaryorappropriate.Inconnectionwithourreview,wehavenotindependentlyverifiedanyoftheforegoinginformationandhave,withyourconsent,reliedonitsbeingcompleteandaccurateinallmaterialrespects.Inaddition,wehavenotmadeanyindependentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)oftheCompanyoranyofitssubsidiaries,norhavewebeenfurnishedwithanysuchevaluationorappraisal.Withtrespecttothefinancialforecastsreferredtoabove,wehave,atyourdirection,assumedthattheyhavebeenreasonablypreparedonbasesreflectingthebestcurrentlyavailableestimatesandjudgmentsofmanagementastothefuturefinancialperformanceoftheCompany,theT&DBusiness,theNuclearAssets,andtheRegulatoryAssets.Wehavealso,atyourdirection,reliedonyouradviceregardingthetaxconsequencesoftheLIPA Transaction.WehavenotattemptedtoquantifytheregulatoryriskinherentintheRegulatoryAssets,whichwillcompriseamajorityoftheassetstheCompanywillownatthetimeoftheLIPATransaction.Further,ouropinionisbasedoneconomic,monetaryandmarketconditionsexistingonthedatehereof.Dillon,Read&Co.Inc.hasactedasfinancialadvisortotheBoardofDirectorsoftheCompanyinconnectionwiththeLIPATransaction,forwhichwewillreceiveafee.Intheordinarycourseofbusiness,wehavetradedthedebtandequitysecuritiesoftheCompanyforourownaccountandfortheaccountsofourcustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.Inrenderingthisopinion,weexpressnoviewastotherangeofvaluesatwhichtheParentcommonstockmaytradefollowingconsummationoftheLIPATransaction,andwearenotmakinganyrecommendationtothestockholdersoftheCompanywithrespecttotheadvisabilityofdisposingoforretainingsuchParentcommonstockfollowingtheLIPATransaction.Baseduponandsubjecttotheforegoing,weareoftheopinion,asofthedatehereof,thattheConsiderationisfair,fromafinancialpointofview,totheCompany.'Verytrulyyours,DILLON,READ&CO.INC.
June26,1997TheBoardofDirectorsLongIslandLightingCompany175EastOldCountryRoadHicksville,NY11801GentlemenandLadies:Youhaverequestedouropinionastothefairness,fromafinancialpointofview,totheholders(the"Stockholders")ofcommonstock,parvalue$5.00pershare("CompanyCommonStock"),ofLongIslandLightingCompany(the"Company")oftheConversionRatiossetforthintheAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofJune26,1997(the"Agreement"),byandamongBrooklynUnionGasCompany("BrooklynUnion")andLongIslandLightingCompany,pursuanttowhichBrooklynUnionandLongIslandLightingCompanyshallcombineandbecomewhollyownedsubsidiariesofBLHoldingCorp.,anewlycreatedholdingcompany(the"Transaction").IntheeventtheTransactionisconsummated,eachissuedandoutstandingshareofCompanyCommonStock,otherthansharesofCompanyCommonStocktobecanceledpursuanttheAgreement,shallbeconvertedintotherighttoreceive.803(the"OriginalRatio")shares,oriftheLIPATransactionisconsummated,.88(the"LIPARatio")shares,ofBLHoldingCorp.commonstock,$.01parvalue,andeachshareofBrooklynUnioncommonstock,otherthansharesofBrooklynUnioncommonstocktobecanceledpursuanttotheAgreement,shallbeconvertedintotherighttoreceiveoneshareofBLHoldingCorp.commonstock.Inarrivingatouropinion,wehave,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtotheCompanyandBrooklynUnion,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtousbytheCompanyandBrooklynUnionrelatingtothebusinessandprospectsoftheCompanyandBrooklynUnion,(iii)conducteddiscussionswithmembersoftheseniormanagementsoftheCompanyandBrooklynUnionwithrespecttothebusinessandprospectsoftheCompanyandBrooklynUnion,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinesswebelievetobegenerallycomparabletothoseoftheCompanyandBrooklynUnion,(v)reviewedthehistoricalmarketpricesandtradingvolumesoftheCompanyCommonStockandthecommonstockofBrooklynUnion,(vi)comparedtheproposedfinancialtermsoftheTransactionwiththefinancialtermsofcertainothermergerswhichwebelievetobegenerallycomparabletotheTransaction,(vii)analyzedtherespectivecontributionsintermsofrevenue,earnings,cashfiowandcommonequityoftheCompanyandBrooklynUniontothecombinedcompany,andtherelativeownershipofBLHoldingCorp.aftertheTransactionbythecurrentholdersoftheCompanyCommonStockandBrooklynUnioncommonstock,(viii)consideredtheproformaeffectoftheTransactionontheCompany'scapitalizationratios,earnings,cashflowandbookvaluepershare,(ix)reviewedtheAgreement,and(x)conductedsuchotherfinancialstudies,analysesandinvestigations,andconsideredsuchotherinformation,aswedeemednecessaryorappropriate.Inconnectionwithourreview,wehavenotindependentlyverifiedanyoftheforegoinginformationandhave,withyourconsent,reliedonitsbeingcompleteandaccurateinallmaterialrespects.Inaddition,wehavenotmadeanyindependentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)oftheCompanyorBrooklynUnionoranyoftheirrespectivesubsidiaries,norhavewebeenfurnishedwithanysuchevaluationorappraisal.Withrespecttothefinancialforecastsreferredtoabove,wehave,atyourdirection,assumedthattheyhavebeenreasonablypreparedonbasesreflectingthebestcurrentlyavailableestimatesandtjudgmentsoftheCompany'sandBrooklynUnion'smanagementastothefuturefinancialperformanceofeachcompany.Withyourconsent,wehavereliedonyouradviceregardingthetaxconsequencesoftheTransaction.Further,ouropinionisbasedoneconomic,monetaryandmarketconditionsexistingonthedatehereof.
Dillon,Read4Co.Inc.hasactedasfinancialadvisortotheBoardofDirectorsoftheCompanyinconnectionwiththeTransaction,forwhichwewillreceiveafee.Intheordinarycourseofbusiness,wehavetradedthedebtandequitysecuritiesoftheCompanyandBrooklynUnionforourownaccountandfortheaccountsofour'customersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.Inrenderingthisopinion,weexpressnoviewastotheratigeofvaluesatwhichBLHoldingCorp.commonstockmaytradefollowingconsummationoftheTransaction,andwearenotmakinganyrecommendationtotheStockholderswithrespecttotheadvisabilityofdisposingoforretainingsuchBLHoldingCorp.commonstockfollowingtheTransaction.Baseduponandsubjecttotheforegoing,weareoftheopinion,asofthedatehereof,thattheOriginalRatioandtheLIPARatioarefair,fromafinancialpointofview,totheStockholders.Verytrulyyours,DILLON,READ&CO.INC.ll ANNEXGFORMOFCERTIFICATEOFINCORPORATIONOFTHEHOLDINGCOMPANYIiiUNDERSECTION402OFTHEBUSINESSCORPORATIONLAWOFTHESTATEOFNEWYORKARTICLEINAMEThenameofthecorporation(the"Corporation")is"ARTICLEIIPURPOSEIThepurposesforwhichtheCorporationisformedaretoengageinanylawfulactoractivityforwhichcoqiorationsmaybeorganizedundertheNYBCL,buttheCorporationisnotformedtoengageinanyactoractivityrequiringtheconsentorapproval"ofanystateofficial,department,board,agencyorotherbodywithoutsuchconsentorapprovalfirstbeingobtained.ARTICLEIIIOFFICETheofficeoftheCorporationistobelocatedintheCountyof,StateofNewYork.ARTICLEIVCAPITALSTOCKSection1.TheaggregatenumberofshareswhichtheCorporationshallhav'eauthoritytoissueshallbe450,000,000sharesofCommonStock,parvalue$.01pershare,and100,000,000sharesofPreferredStock,parvalue$.01pershare.Section2.TheamountofcapitalstockOftheCorporationshallbe$7,000,000.Section3.SharesofPreferredStockmaybeissuedfromtimetotimeinoneormoreseriesasmaybedeterminedfromtimetotimebytheBoardofDirectors.ExceptinrespectoftheparticularstobefixedbytheBoardofDirectorsasprovidedbelow,allsharesofPreferredStockshallbeofequalrank.AllsharesinanyoneseriesofPreferredStockshallbealikeineveryparticularexceptthatsharesofanyoneseriesissuedatdifferenttimesmaydifferastothedatesfromwhichdividendsthereonshallbecumulative.Thevotingrights,ifany,ofeachsuchseriesandthepreferencesandrelative,participating,optionalandotherspecialrightsofeachseriesandthequalifications,limitationsandrestrictionsthereof,ifany,maydifferfromthoseofanyandallotherseries.TheBoardofDirectorsshallhavetheauthoritytofixbyresolutiondulyadoptedpriortotheissuanceofanysharesofaparticularseriesofPreferredStockdesignatedbytheBoardofDirectors,thevoting.rights,if,any,oftheholdersofsharesofsuchseriesandthedesignations,preferencesandrelative,participating,optionalndotherspecialrightsofeachseriesand,thequalifications,limitationsandrestrictionsthereof(the"PreferredStockDesignation").G-I rWithoutlimitingthegeneralityoftheforegoingauthorityoftheBoardofDirectors,theBoardofDirectorsfromtimetotimemay:(a)establishanddesignateaseriesofPreferredStock,whichmaybedistinguishedbynumber,letterortitlefromotherPreferredStockoftheCorporationoranyseriesthereof;(b)fixandthereafterincreaseor,decrease(butnotllelowthenumberofsharesthereofthenoutstanding)thenumberofsharesthatshallconstitutesuchseries;(c)providefordividendsonsharesof.suchseriesand"ifprovisionismadefordividends,determinethedividendrateandthedatesonwhichdividends,ifdeclared,shallbepayable,whetherthedividendsshallbecumulativeand,ifcumulative,forwhatdateordatesdividendsshallaccrue,andtheotherconditions,ifany,includingrightsofpriority,ifany,uponwhichthedividendsshallbepaid;.(d)provideastowhetherthesharesofsuchseriesshallberedeemable,andifredeemable,theterms,limitationsandrestrictionswithrespecttosuchredemption,includingwithoutlimitation,themannerofselectingsharesforredemptioniflessthanallsharesaretoberedeemed,thetimeortimesandthepriceorpricesatwhichthesharesofsuchseriesshallbesubjecttoredemption,inwholeorinpart,andtheamount,ifany,inadditiontoanyaccrueddividendsthereonwhichtheholdersofsharesofanyseriesshallbeentitledtoreceiveupontheredemptionthereof,whichamountmayvaryatdifferentredemptiondatesandmaybedifferentwithrespecttosharesredeemedthroughtheoperationofanypurchase;retirementorsinkingfundandwithrespecttosharesotherwiseredeemed;(e)fixtheamount,inadditiontoanyaccrueddividendsthereon,whichtheholdersofsharesofsuchseriesshallbeentitledtoreceiveuponthevoluntaryorinvoluntaryliquidation,dissolutionorwindingupoftheCorporation,whichamountmayvaryatdifferentdatesandmayvarydependingonwhethersuchliquidation,dissolutionorwindingupisvoluntaryorinvoluntary,andtodetermineanyotherrights,ifany,towhichholdersofthesharesofsuchseriesshallbeentitledintheeventofanyliquidation,dissolutionorwindingupoftheCorporation;(f)establishwhetherthesharesofsuchseriesshallbesubjecttotheoperationofapurchase,retirementorsinkingfundandifso,theterms,limitationsandrestrictionswithrespectthereto,includingwithoutlimitation,whethersuchpurchase,retirementorsinkingfundshallbecumulativeornoncumulative,theextenttoandthemannerinwhichsuchfundsshallbeappliedtothepurchase,retirementorredemptionofthesharesofsuchseriesforretirementortoothercorporatepurposesandthetermsandprovisionsrelativetotheoperationthereof;(g)determinetheextentofthevotingrights,ifany,ofthesharesofsuchseriesanddeterminewhetherthesharesofsuchserieshavingvotingrightsshallhavemultiplevotespershare;II(h)providewhetherornot,thesharesofsuchseriesshallbeconvertibleintoorexchangeableforsharesofanyotherclassorclassesofcapitalstockoftheCorporation,includingCommonStock,PreferredStockorofanyseriesthereof,andifconvertibleorexchangeable,establishtheconversionorexchangepriceorrate,theadjustmentsthereof,andtheothertermsandconditions,ifany,onwhichsuchshares'shallbeconvertibleorexchangeable;and)(i)provideforanyotherpreferences,anyrelativeparticipating,optionalorotherspecialrights,anyqualifications,limitationsorrestrictionsthereof,oranyothertermorprovisionofsharesofsuchseriesastheBoardofDirectorsmaydeemappropriateordesirable.4IISharesofPreferredStockmaybeissuedby'heCorporationfor'suchconsiderationasisdeterminedbytheBoardofDirectors.IIltSection4.TheCommonStockshallbesubjecttotheexpresstermsofthePreferredStockandanyseriesthereof.TheholdersofsharesofCommonStockshallbeentitledtoonevoteforeachsuchshareuponallproposalspresentedtotheshareholdersonwhichtheholdersofCommonStockareentitledto.vote.ExceptasotherwiseprovidedbylaworbytheresolutionorresolutionsadoptedbytheBoardofDirectorsdesignatingtherights,powersandpreferencesofanyseriesofPreferredStock,theCommonStockshallhavetheexclusiverightG-2 ttovotefortheelectionofDirectorsandforallotherpurposes,andholdersofPreferred.Stockshallnotbeentitledtoreceivenoticeofanymeetingofshareholdersatwhichtheyarenotentitledtovote.Thenumber-ofauthorizedsharesofPreferredStockmaybeincreased,ordecreased(butnot,belowthe.numberofsharesthereofthenoutstanding)bytheaffirmativevoteoftheholders,ofamajorityoftheoutstandingsharesofCommonStock,withoutavoteoftheholdersofthePreferredStock,orofanyseriesthereof,unlessavoteofanysuchholdersisrequiredpursuanttoanyPreferredStockDesignation.TheCorporafionshallbeentitledtotreat'hepersoninwhosenameanyshareofitsstockisregisteredastheownerthereofforallpurposesandshallnotbeboundtorecognizeanyequitableorotherclaimto,orinterestin,suchshareonthepartofanyotherperson,whetherornottheCorporationshallhavenoticethereof,exceptasexpresslyprovidedbyapplicablelaw.ARTICLEVSHAREHOLDERACTIONAnyactionrequiredorpermittedtobetakenbytheshareholdersoftheCorporationmustbeeffectedatadulycalledannualorspecialmeetingofsuchholdersandmaynotbeeffectedbyanyconsentinwritingbysuchholders.ExceptasotherwiserequiredbylawandsubjecttotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidation,specialmeetingsofshareholdersoftheCorporationforanypurposeorpurposesmaybecalledonlybytheBoardofDirectorspursuanttoaresolutionstatingthepurposeorpurposesthereofapprovedbyamajorityofthetotalnumberofDirectorswhichtheCorporationwouldhaveiftherewerenovacancies(the"WholeBoard")andanypowerofshareholderstocallaspecialmeetingisspecificallydenied.Nobusinessotherthanthatstatedinthenoticeshallbetransactedatanyspecialmeeting.IIARTICLEVIELECTIONOFDIRECTORSUnlessandexcepttotheextentthattheBy-Laws.oftheCorporationshallsorequire,theelectionofDirectorsoftheCorporationneednotbebywrittenballot.ARTICLEVIIBOARDOFDIRECTORSSection1.Number,ElectionandTerms.ExceptasotherwisefixedbyorpursuanttotheprovisionsofArticleIVhereofrelatingtotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectadditionalDirectors'underspecifiedcircumstances,thenumberoftheDirectors"oftheCorporationshall'befixedfromtime'totimeexclusivelypursuanttoaresolutionadoptedbyamajorityoftheWholeBoard.NodecreaseinthenumberofDirectors,however,shallshortenthetermofanyincumbentDirector.DirectorsshallbeelectedbytheshareholdersoftheCorporationattheirannualmeeting,exceptas'ereinotherwiseprovided'fornewlycreateddirectorshipsandvacancies,toserveforoneyearoruntiltheirsuccessorsare'electedorchosenandqualified.Section2.ShareholderNomination,of,DirectorCandidates;,ShareholderPropo'salofBusiness.AdvancenoticeofshareholdernominationsfortheelectionofDirectorsandoftheproposalofbusinessbyshareholdersshallbegiveninthemannerprovidedintheBy-LawsoftheCorporation,asamendedandineffectfromtimetotime.Section3.NewlyCreatedDirectorshipsandVacancies.ExceptasotherwiseprovidedfororfixedbytorpursuanttotheprovisionsofArticleIVhereofrelating.totherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsor'ponliqui'dationtoelectDirectorsunderspecifiedcircumstances,newlycreateddirecforshipsresultingfromanyincreaseinthenumberofDirectorsandG-3 anyvacanciesontheBoardofDirectorsresultingfromdeath,resignation,disqualification,removalorother.causeshallbefilledbytheaffirmativevoteofamajorityoftheremainingDirectorstheninoffice,eventhoughlessthanaquorumoftheBoardofDirectors,andnotbytheshareholders.AnyDirectorelectedinaccordancewiththepre'cedingsentenceshallholdofficefortheremainderofsuchunexpiredtermoruntilsuchDirector'ssuccessorshallhavebeendulyelectedorchosenandqualified.NodecreaseinthenumberofDirectorsconstitutingtheBoardofDirectorsshallshortenthetermofanyincumbentDirector.Section4.Removal.SubjecttotherightSofanyclassorseriesofstockhayingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectDirectorsunderspecifiedcircumstances,anyDirectormayberemovedfromoffice.onlyforcausebytheaffirmativvoteoftheholdersofatleastamajorityofthevotingpowerofallsharesoftheCorporationentitledtovotegenerallyintheelectionofDirectors(the"VotingStock")thenoutstanding,votingtogetherasasingleclass.Section5.Amendmcnt,Repeal,Etc.NotwithstandinganythingcontainedinthisCertificateofIncorporationtothecontrary,theaffirmativevoteoftheholdersofatleast80%ofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass,shallberequiredtoalter,amend,adoptanyprovisioninconsistentwithorrepealthisArticleVII.iARTICLEVIIIBY-LAWS"TheBy-LawsmaybealteredorrepealedandnewBy-Lawsmaybeadopted(1)atanyannualorspecialmeetingofshareholders,bytheaffirmativevoteoftheholdersofamajorityofthevotingpowerofthestockissuedandoutstandingandentitledtovotethereat,provided,however,thatanyproposedalterationorrepealof,ortheadoptionofanyBy-Lawinconsistentwith,Section2.2,2.7or2.10ofArticleIIoftheBy-LawsorwithSection3.9or3.11ofArticleIIIoftheBy-Laws,bytheshareholdersshallrequiretheaffirmativevoteoftheholdersofatleast80%ofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass;andprovided,further,however,thatinthecaseofanysuchshareholderactionataspecialmeetingof~shareholders,noticeoftheproposedalteration,repealoradoptionofthenewBy-LaworBy-Lawsmustbe~containedinthenoticeofsuchspecialmeeting,or(2)bytheaffirmativevoteofamajorityoftheWhole'oard;providedthatanyproposedalterationorrepealof,ortheadoptionofanyBy-Lawinconsistentwith,Section4.9or4.11oftheArticleIVoftheBy-LawsbytheBoardof'Directorsshallrequirethevoteoftwo-thirdsoftheWholeBoard.ARTICLEIXAMENDMENTOFCERTIFICATEOFINCORPORATIONTheCorporationreservestherightatanytimefromtimetotimetoamend,alter,changeorrepealanyprovisioncontainedinthisCertificateofIncorporation,andanyotherprovisionsauthorizedbythelawsoftheStateofNewYorkatthetimeinforcemaybeaddedorinserted,inthemannernoworhereafterprescribedbylaw;and,exceptassetforthinArticlesXIVandXV,allrights,preferencesandprivilegesofwhatsoevernatureconferreduponshareholders,DirectorsoranyotherpersonswhomsoeverbyandpursuanttothisCertificateofIncorporationinitspresentformorashereafteramendedareglantedsubjecttotherightreservedinthisArticle.NotwithstandinganythingcontainedinthisCertificateofIncorporationtothecontrary,theaffirmativevoteoftheholdersofat"least80%oftheVotingStockthenoutstanding,votingtogetherasasingleclass,shallberequiredtoalter,amend,adoptanyprovisioninconsistentwithorrepealArticleV,VII,VIIIorthissentence.hARTICLEXAGENTFORSERVICEOFPROCESSTheSecretaryofStateoftheStateofNewYorkisdesignatedasagentoftheCorporationuponwhomprocessagainsttheCorporationmaybeserved.ThepostofficeaddresstowhichtheSecretaryofStateshallmailacopyofanyprocessagainsttheCorporationserveduponhimis>>c/oCTCorporationSystem,1633Broadway,NewYork,NewYork10019.
ARTICLEXIREGISTEREDAGENTThenameandaddressoftheregisteredagent,whichistobetheagentoftheCorporationuponwhomprocessagainstitmaybeserved,areCTCorporationSystem,1633Broadway,NewYork,NewYork10019.ARTICLEXIIDURATIONThedurationoftheCorporationshallbeperpetual.ARTICLEXIIINOPREEMPTIVERIGHTSTheholdersofequitysharesandtheholdersofvotingshares(aseachtermisdefinedinSection622oftheNYBCL)oftheCorporationshallnothaveanypreemptiverights.ARTICLEXIVLIMITEDLIABILITY;INDEMNIFICATIONSection1.Eachpersonwhowasorismadeapartyoristh'reatenedtobemadeapartytoorisinvolvedinanyaction,suitorproceeding,orappealthereof,whethercivil,criminal,administrativeorinvestigative(hereinaftera"proceeding"),byreasonofthefactthatheorshe,orapersonOfwhomheorsheisthelegalrepresentative,isorwasaDirectororofficeroftheCorporationorisorwasservingattherequestoftheCorporationasaDirector,officer,employeeoragentofanothercorporationorofapartnership,jointventure,trustorotherenterprise,includingservicewithrespecttoemployeebenefitplans,whetherthebasisofsuchproceedingisallegedactioninanofficiacapacityasaDirector,officer,employeeoragentorinanyothercapacitywhileservingasaDirector,officer,employeeoragent,shallbeindemnifiedandheldharmlessbytheCorporationtothefullestextentauthorizedbytheNYBCL,asthesameexistsormayhereafterbeamended(but,inthecaseofanysuchamendment,onlytotheextentthatsuchamendment'permitstheCorporationtoprovidebroaderindemnificationrightsthansaidlawpermittedtheCorporationtoprovidepriortosuchamendment),againstallexpense,liabilityandloss(including,butnotlimitedto,allattorneys'ees,judgments,fines,ERISAexcisetaxesorpenaltiesandamountspaidortobep'aidinsettlement)reasonablyincurredorsufferedbysuchpersoninconnectiontherewithandsuchindemnificationshallcontinueastoapersonwhohasceasedtobeaDirector,officer,employeeoragentandshallinuretothebenefitofhisorherheirs,executorsandadministrators;provided,however,that,exceptasprovidedinSection2ofthisArticleXIV,theCorporationshallindemnifyanysuchpersonseekingindemnificationinconnectionwithaproceeding(orpartthereof)initiatedbysuchpersononlyifsuchproceeding(orpartthereof)wasauthorizedbytheBoardofDirectorsoftheCorporation.TherighttoindemnificationconferredinthisSection1shallbeacontractrightandshallincludetherighttobepaidbytheCorporationtheexpenses(including,withoutlimitation,attorneys'ees)incurredindefendinganysuchproceedinginadvanceofitsfinaldisposition;provided,however,that,iftheNYBCLrequires,thepaymentofsuchexpensesincurredbyaDirectororofficerinhisorhercapacityasaDirectororofficer(andnotinanyothercapacityinwhichservicewasorisrenderedbysuchpersonwhileaDirectororofficer,including,withoutlimitation,servicetoanemployeebenefitplan)inadvanceofthefinaldispositionofaproceedingshallbemadeonlyupondeliverytotheCorporationofanundertaking,byoronbehalfofsuchDirectororofficer,torepayallamountssoadvancedifitshallultimatelybedeterminedthatsuchDirectororofficerisnotentitledtobeindemnifiedunderthisArticle,XIVorotherwise.TheCorporationmay,byactionofitsBoardofDirectors,provideindemnificationtoemployeesandagentsoftheCorporationwiththesamescopeandeffectastheforegoingindemnificationofDirectorsandofficers,oron'suchothertermsandconditionsastheBoardofDirectorsmaydeemnecessaryordesirable.G-5 Section2.IfaclaimunderSection1ofthisArticle'XIVisnotpaidinfullbytheCorporationwithinthirtydaysafterawrittenclaimhasbeenreceivedbytheCorporation,theclaimantmayatanytimethereafterbringsuitagainsttheCorporationtorecovertheunpaidamountoftheclaimand,ifsuccessfulinwholeorinpart,theclaimantshallbeentitledtobepaidalsotheexpense(including,withoutlimitation,attorneys'ees)ofprosecutingsuchclaim.,Itshallbeadefensetoanysuchaction(otherthananactionbroughttoenforceaclaimforexpensesincurredindefendinganyproceedinginadvanceofitsfinaldispositionwheretherequiredundertaking,ifanyisrequired,hasbeentenderedtotheCorporation)thattheclaimanthasnotmetthestandardsofconductwhichmakeitpermissibleundertheNYBCLfortheCorporationtoindemnifytheclaimantfortheamountclaimed,buttheburdenofprovingsuchdefenseshallbeontheCorporation.NeitherthefailureoftheCorporation(includingitsBoardofDirectors,oranypartthereof,independentlegalcounsel,oritsshareholders)tohavemadeadeterminationpriortothecommencementofsuchactionthatindemnificationoftheclaimantisproperinthecircumstancesbecauseheorshehasmettheapplicablestandardofconductsetforthintheNYBCL,noranactualdeterminationbytheCorporation(includingitsBoardofDirectors,oranypartthereof,independentlegalcounsel,oritsshareholders)thattheclaimanthasnotmetsuchapplicablestandardofconduct,shallbeadefensetotheactionorcreateapresumptionthattheclaimanthasnotmettheapplicablestandardofconduct.Section3.TherighttoindemnificationandthepaymentofexpensesincurredindefendingaproceedinginadvanceofitsfinaldispositionconferredinthisArticleXIVshallnotbeexclusiveofanyotfierrightwhichanypersonmayhaveorhereafteracquireunderanystatute,provisionoftheCertificateofIncorporation,By-Law,agreement;voteofshareholdersordisinterestedDirectorsorotherwise.Section4.TheCorporationmaymaintaininsurance,atitsex'pense,"toprotectitselfandanyDirector,officer,employeeoragentoftheCorporationoranothercorporation,partnership,jointventure,trustorotherenterpriseagainstanyexpense,liabilityorloss,tothefullestextentallowedbylaw,whetherornottheCorporationwouldhavethepowertoindemnifysuchpersonagainstsuchexpense,liabilityorlossundertheNYBCL.ARTICLEXVDIRECTORLIABILITYADirectoroftheCorporationshallnotbepersonallyliabletotheCorporationoritsshareholdersfordamagesforanybreachofdutyinsuchcapacityexceptthattlteliabilityofaDirectorshallnotbesolimitedif(1)ajudgmentorotherfinaladjudicationadversetohimestablishesthathis'actsoromissionswereinbadfaithorinvolvedintentionalmisconductoraknowing.violationoflaworthathep'ersonallygainedinfactafinancialprofitorotheradvantagetowhichhewasnotlegallyentitledorthathisactsviolatedSection'719oftheNYBCL,or(2)hisactsoromissionsoccurredpriortotheadoptionofthisprovision.NoamendmenttoorrepealofthisArticleXVshallapplytoorhaveanyeffectontheliabilityorallegedliabilityofanyDirectoroftheCorporationfororwithrespecttoanyactsoromissionsofsuchDirectoroccurringpriortosuchamendmentorrepeal.IftheNYBCLisamendedhereaftertoexpandorlimittheliabilityofa,director,thentheliabilityofaDirectoroftheCorporationshallbeexpandedtotheextentrequiredorlimitedtotheextentpermittedbythe'NYBCL,assoamended.G-6 FORMOFBY-LAWSOFTHEHOLDINGCOMPANYINCORPORATEDUNDERTHELAWSOFTHESTATEOFNEWYORKANNEXHARTICLEIOFFICESANDRECORDSSection1.1.NewYorkOAice.TheofficeoftheCorporationintheStateofNewYorkshallbelocatedintheCountyofISection1.2.OtherOffices.TheCorporationmayhavesuchotheroffices,,eitherwithinorwithouttheStateofNewYork,astheBoardofDirectorsmaydesignate,orasthebusinessoftheCorporationmayfromtimetotimerequire.Section1.3.BooksandRecords.ThebooksandrecordsoftheCorporationmaybekeptoutsidetheStateofNewYorkatsuchplaceorplacesasmayfromtimetotimebedesignatedbytheBoardofDirectors.ARTICLEIISHAREHOLDERSSection2.1.AnnualMeeting.TheannualmeetingoftheshareholdersoftheCorporationshallbeheld~~~onsuchdateandatsuchtimeasmaybefixedbyresolutionoftheBoardofDirectors.Section2.2.SpecialMeeting.ExceptasotherwiserequiredbylawandsubjecttotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidation,specialmeetingsofsliareholdersoftileCorporationforanypurposeorpurposesmaybecalledonlybytheBoardofDirectorspursuanttoaresolutionstatingthepurposeorpurposesthereofapprovedbyamajo'rityofthetotalnumberofDirectorswhichtheCorporationwould'haveiftherewerenovacancies(the"WholeBoard").tSection2,3.PlaceofMeeting.TheBoardofDirectorsmaydesignatetheplaceofmeetingfor-anyannualmeetingorforanyspecialmeetingoftheshareholders.Ifnodesignationissomade,theplaceofmeetingshallbetheprincipalofficeoftheCorporation.IIISection2.4,NoticeofMeeting.Writtenorprintednotice,statingtheplace,dayandhourofthemeetingandthepurposeorpurposesforwhichthemeetingiscalled,shallbedeliveredbytheCorporationnotlessthan10calendardaysnormorethan50calendardaysbeforethedateoftheineeting,eitherpersonallyorbymail,toeachshareholder:ofrecordentitledtovoteatsuchmeeting.Ifmailed,suchnoticesliallbedeemedtobedeliveredwhendepositedintheUnitedStatesmailwithpostagethereonprepaid,addressedtotheshareholderatsuchperson'saddressasitappearsonthestocktransferbooksoftheCorporation.Suchfurthernoticeshallbegivenasmayberequiredbylaw.OnlysuchbusinessshallbeconductedataspecialmeetingofshareholdersasshallhavebeenbroughtbeforethemeetingpursuanttotheCorporation'snoticeofmeeting.Meetingsmaybeheldwithoutnoticeifallshareholdersentitledtovotearepresent,orifnoticeiswaivedbythosenotpresentinaccordancewithSection6.4oftheseBy-Laws.Any'reviouslyscheduledmeetingoftheshareholdersmaybepostponed,andanyspecialmeetingoftheshareholdersmaybecanceled,byresolutionoftheBoardofDirectorsuponpublicnoticegivenpriortothedatepreviouslyscheduledforsuchmeetingofshareholders.H-1
,Section2.5.QuorumandAdjournment;Voting.ExceptasotherwiseprovidedbylaworbytheCertificateofIncorporation,theholdersofamajorityofthevotingpowerofalloutstandingsharesoftheCorporationentitledtovotegenerallyintheelectionofDirectors(the"VotingStock"),representedinpersonorbyproxy,shallconstituteaquorumatameetingofshareholders,exceptthatwhenspecifiedbusinessistobevotedonbyaclassorseriesofstockvotingasaclass,theholders,ofamajorityofthesharesofsuchclassorseriesshallconstituteaquorumofsuchclassorseriesforthetransactionofsuchbusiness.TheChairmanofthemeetingmayadjournthemeetingfromtimetotime,whether'ornottherei8suchaquorum.Nonoticeofthetimeandplaceofadjournedmeetingsneedbegivenexcepta'srequiredbylaw.Theshareholderspresentatadulycalledmeetingatwhichaquorumispresentmaycontinuetotransactbusinessuntiladjournment,notwithstandingthewithdrawalofenoughshareholderstoleavelessthanaquorum.ISection2.6.Proxies.Atallmeetingsofshareholders,ashareholdermayvotebyproxyexecutedinwriting(or,insuchmannerprescribedbythe,NewYorkBusinessCorporationLaw(the,"NYBCL"))bytheshareholder,orbysuchperson'sdulyauthorizedattorneyinfact.Section2.7.NoticeofShareholderBusinessandNominations.'4T(A)AnnualMeetingsofShareholders.(1)NominationsofpersonsforelectiontotheBoardofDirectorsoftheCorporationandtheproposalofbusinesst'obeconsideredbytheshareholdersmaybemadeatanannualmeetingofshareholders,(a)pursuanttotheCorporation'snoticeofmeetingpursuanttoSection2.4oftheseBy-Laws,(b)byoratthedirectionoftheBoardofDirectorsor(c)byanyshareholderoftheCorporationwhowasashareholderofrecordatthetimeofgivingofnoticeprovidedforinthisBy-Law,whoisentitledtovoteatthemeetingandwhocomplieswiththenoticepioceduressetforthinthisBy-Law.(2)Fornominationsorotherbusinesstobeproperlybroughtbeforeanannualmeetingbyashareholder"pursuanttoclause(c)ofparagraph(A)(1)ofthisBy-Law,theshareholdermusthavegiventimelynoticethereofinwritingtotheSecretaryoftheCorporationandsuchotherbusinessmustotherwisebeapropermatterforshareholderaction.Tobe,timely,ashareholder'snoticeshallbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCorporationnotlaterthanthecloseofbusinessonthe60thcalendardaynorearlierthanthecloseofbusinessonthe90thcalendardaypriortothefirstanniversaryoftheprecedingyear'sannualmeeting;plovided,however,thatintheeventthatthedateoftheannualmeetingismorethan30calendardaysbeforeormorethorn60calendardaysaftersuchanniversarydate,notice,bytheshareholdertobetimelymustbesodeliverednotearlierthanthe,closeofbusinessonthe90thcalendarday,priortosuchannualmeetingandnotlaterthanthecloseofbusinessonthelaterofthe60thcalendardaypriortosuchannualmeetingorthe10thcalendardayfollowingthecalendardayonwhichpublicannouncementofthedateofsuchmeetingisfirstmadebytheCorporation.Forpurposesofdeterminingwhetherashareholder'snoticeshallhavebeendeliveredinatimelymannerfortheannualrqeetingofshareholdersin199,thefirstanniversaryofthepreviousyear'meetingshallbedeemedtobe,,199.Innoeventshallthepublicannouncementofanadjournmentofanannualmeetingcommenceanewtimeperiodforthegivingofashareholder'snoticeasdescribedabove.Suchshareholder'snoticeshallsetforth(a)astoeachpersonwhomtheshareholderproposestonominateforelectionorreelectionasaDirectorallinformationrelatingtosuchpersonthatisrequiredtobedisclosedinsolicitationsofproxiesfor,electionofDirectorsinanelectioncontest,orisotherwiserequired,ineachcasepursuanttoRegulation14Aunder'heSecuritiesExchangeActof1934,asamended(the"ExchangeAct")andRule14a-11thereunder(includingsuchperson'swrittenconsenttobeingnamedintheproxystatementasanomineeandtoservingasaDirectorifelected);(b)astoanyotherbusinessthattheshareholderproposestobringbeforethemeeting,abriefdescriptionofthebusinessdesiredtobebroughtbeforethemeeting,thereasonsforconductingsuch,businessatthemeetingandanymaterialinterestinsuchbusinessofsuchshareholderandthebeneficialowner,ifany,onwhosebehalftheproposalismade;and(c)astotheshareholdergivingthenoticeandthe,beneficialowner,ifany,onwhosebehalfthenominationorproposaliSmade(i)thenameandaddressofsuchshareholder,as'theyappearontheCorporation'sbooks,andofsuchbeneficialownerand(ii)theclassandnumberofsharesoftheCorporationwhichareownedbeneficiallyandofrecordbysuchshareholderandsuchbeneficialowner.H-2 (3)Notwithstandinganythinginthesecondsentenceofparagraph(A)(2)ofthisBy-La'wtothecontrary,intheeventthatthenumberofDirectorstobeelectedtotheBoardofDirectorsoftheCorporationisincreasedandthereisnopublicannouncementby'heCorporationnamingallofthenomineesforDirectororspecifyingthesize'oftheincreasedBoardof.Directorsatleast70calendardayspriortothefirstanniversaryoftheprecedingyear'sannualmeeting,ashareholder's"notice.requiredbythisBy-Lawshallalsobeconsideredtimely,butonlywithrespecttonomineesforanynewpositionscreatedbysuchincrease,ifitshillbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCorporationnotlaterthanthecloseofbUsinessonthe10thcalendardayfollowingthedayonwhichsuchpublicannouncementisfirstmadebytheCorporation.(B)SpecialMeetingsofShareholders.NominationsofpersonsforelectiontotheBoardofDirectorsmaybemadeataspecialmeetingofshareholdersatwhichDirectorsaretobeelectedpursuanttotheCorporation'snoticeofmeeting(a)byoratthedirectionoftheBoardofDirectorsor(b)providedthattheBoardofDirectorshasdeterminedthatDirectorsshallbeelectedatsuchmeeting,byanyshareholderoftheCorporationwhoisashareholderofrecordatthetimeofgivingofnoticeprovidedforinthisBy-Law,whoshallbe,entitledtovoteatthemeetingandwhocomplieswiththenoticeproceduressetforthinthisBy-Law,IntheeventtheCorporationcallsaspecialmeetingofshareholdersforthepurposeofelectingoneormoreDirectorstotheBoardofDirectors,anyshareholdermaynominateapersonorpersons(asthecasemaybe),forelectiontosuchposition(s)asspecifiedintheCorporation'snoticeofmeetingpursuanttoclause(b)oftheprecedingsentence,iftheshareholder'snoticecomplyingwiththereq'uirements'ofclauses(a)and(c)ofparagraph(A)(2)ofthisBy-LawshallbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCorporationnotearlierthanthecloseofbusinessonthe90thcalendardaypriortosuchspecialmeetingandnotlaterthanthecloseofbusinessonthelaterofthe60thcalendardaypriortosuchspecialmeetingorthe10thcalendardayfollowing,thedayonwhichpublicannouncementisfirstmadeofthedateofthespecialmeetingandofthenomineesproposedbytheBoardofDirectorstobeelectedatsuchmeeting.Innoeventshallthepublicannouncementofanadjournmentofaspecialmeetingcommenceanewtimeperiodforthegivingofashareholder'snoticeasdescribedabove.,Pt(C)General.(I)OnlysuchpersonswhoarenominatedinaccordancewiththeproceduressetforthinthisBy-Lawshallbeeligible,toserveasDirectorsandonlysuchbusinessshallbeconductedatameetingofshareholdersasshallhavebeenbroughtbefore.themeetinginaccordancewiththeproceduressetforthinthisBy-Law.Exceptasotherwiseprovidedbylaw,theCertificateofIncorporationortheseBy-Laws,theChairman'ofthemeetingshallhavethepoweranddutytodeterminewhetheranominationoranybusinessproposedtobebroughtbeforethemeetingwasmadeorproposed,asthecasemaybe,inaccordancewiththeproceduressetforthinthisBy-Lawand,ifanyproposednonjnationorbusinessisnotincompliancewiththisBy-Law,todeclaretliatsuchdefectiveproposalornominationshallbedisregarded.(2)ForpurposesofthisBy-Law,"publicannouncement"shallmeandisclosureinapressreleasereportedbytheDowJonesNewsService,AssociatedPressorcomparablenationalnewsserviceorinadocumentpubliclyfiledbytheCorporationwiththeSecuritiesandExchangeCommissionpursuanttoSection13,14or15(d)oftheExchangeAct.(3)Notwithstandin'gtheforegoingprovisionsofthisBy-Law,ashareholdershall'alsocomplywithallapplicablerequirementsoftheExchangeActandtherulesandregulationsthereunderwithrespecttothematterssetforthinthisBy-Law.NothinginthisBy-Lawshallbedeemedtoaffectanyrights(i)ofshareholderstorequestinclusionofproposalsintheCorporation'sproxystatementpursuant'toRule14a-8undertheExchangeActor(ii)oftheholdersofanyseriesofPreferredStocktoelectDirectorsunderanapplicablbPreferredStockDesignation(asdefinedintheCertificateofIncorporation).Section2.8.ProcedureforElectionofDirectors;RequiredVote.ElectionofDire'ctorsatallmeetingsoftheshareholdersatwhichDirectorsaretobeelectedshallbebyballot,and,subjecttotherightsoftheholdersofanyseriesofPreferredStocktoelectDirectorsunderanapplicablePreferredStockDesignation',apluralityofthevotescastthereatshallelectDirectors.Exceptasotherwiseprovidedbylaw,theCertificateofIncorporation,PreferredStockDesignation,ortheseBy-Laws,inallmattersotherthantheelectionofDirectors,theaffirmativetvoteofamajority'ofthevotingpowerofthesharespresentinpersonorrepresentedbyproxyatthemeetingandentitledtovoteonthemattershallbetheact'oftheshareholders.H-3 Section2.9.InspectorsofElections;OpeningandClosingthePolls.TheBoardofDirectorsbyresolutionshallappoint,orshallauthorizeanofficeroftheCorporationtoappoint,oneormoreinspectors,whichinspectororinspectorsmayincludeindividualswhoservetheCorporationinothercapacities,including,withoutlimitation,asofficers,employeesagentsorrepresentatives,toactatthemeetingsofshareholdersandmakeawrittenreportthereof.Oneormorepersonsmaybedesignated,asalternateinspector(s)toreplaceanyinspectorwhofailstoact.Ifnoinspectororalternatehasbeenappointedtoactorisabletoactatameetingofshareholders,theChairmanofthemeetingshallappointoneormoreinspectors.toactatthemeeting.Eachinspector,beforedischarging"suchperson'sduties,shalltakeandsignanoathfaithfullytoexecutethedutiesofinspectorwithstrictimpartialityandaccordingtothebestofsuchperson'sability.Theinspector(s)shallhavethedutiesprescribedbylaw.TheChairmanofthemeetingshallfixandannounceatthemeetingthedateandtimeoftheopeningandtlieclosingofthepollsforeachmatteruponwhichtheshareholderswill'voteat.ameeting.Section2.10.NoShareholderActionbyWrittenConsent.AnyactionrequiredorpermittedtobetakenbytheshareholdersoftheCorporationmustbeeffectedatadulycalledannualorspecialmeetingofsuchholdersandmaynotbeeffectedbyanyconsentinwritingbysuchholders.ARTICLEIIVBOARDOFDIRECTORSSection3,1.GeneralPowers.ThebusinessandaffairsoftheCorporationshallbemanagedunderthedirectionoftheBoardofDirectors.InadditiontothepowersandauthoritiesbytheseBy-Lawsexpresslyconferreduponthem,theBoardofDirectorsmayexerciseallsuchpowersoftheCorporationanddoallsuchlawfulactsandthingsasarenotbystatuteorbytheCertificateofIncorporationorbytheseBy-Lawsrequiredtobeexercisedordonebytheshareholders.ADirectorofthisCorporationneednotbeashareholdertherein.Section3.2.NumberandTenure.ExceptasotherwisefixedbyorpursuanttotheprovisionsofArticleIVofthe'CertificateofI'ncorporationrelatingtotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsorupon'iquidationtoelectadditionalDirectorsunderspecifiedcircumstances,thenumberoftheDirectorsoftheCorporationshallbefixedfromtimetotimeexclusivelypursuant'toaresolutionadoptedbyamajorityoftheWholeBoard.NodecreaseinthenumberofDirectors,however,shallshortenthe'termofanyincumbentDirector.DirectorsshallbeelectedbytheshareholdersoftheCorporationattheirannualmeeting,exceptashereinotherwiseprovidedforvacanciesandnewlycreateddirectorships,inthemannerprovidedinArticleIIhereof,toserveforoneyearoruntiltheirsuccessorsareelectedorchosenandqualified.LSection3.3.RegularMeetings.AregularmeetingoftheBoardofDirectorsshallbeheldwithoutothernoticethanthisBy-Lawiminediatelyafter,andatthesameplaceas,theannualmeetingofshareholders.TheBoardofDirectorsmay,byresolution,providethetimeandplacefortheholdingofadditionalregularmeetingswithoutothernoticethansuchresolution.Section3.4,SpecialMeetings.SpecialmeetingsoftheBoardofDirectorsshallbecalledattherequestof,theChairmanoftheBoard,thePresidentoramajorityoftheBoardofDirectorstheninoffice.ThepersonorpersonsauthorizedtocallspecialmeetingsoftheBoardofDirectorsmayfixtheplace,andtimeofthemeetings.Section3.5,Notice.NoticeofanyspecialmeetingofDirectorsshallbegiventoeachDirectoratsuchperson'sbusinessorresidenceinwritingbyhanddelivery,first-classorovernightmailorcourierservice,telegramorfacsimiletransmission,ororallybytelephone.Ifmailedbyfirst-classmail,suchnoticeshallbedeemedadequatelydeliveredwhendepositedintheUnitedStatesmailssoaddressed,withpostagethereonprepaid,atleast5calendardaysbeforesuchmeeting.Ifbytelegram,overnightmailorcourierservice,suchnoticeshallbedeemedadequatelydeliveredwhenthetelegramisdeliveredtothetelegraphcompanyorthenoticeisdeliveredtotheovernightmailorcourierservicecompanyatleast24hoursbeforesuchmeeting.IfbyH-4 tfacsimiletransmission,suchnoticeshallbe.deemedadequatelydeliveredwhenthenoticeistransmittedatleast12hoursbeforesuchmeeting.ifbytelephoneorbyhanddelivery,thenoticeshallbegivenatleast12hourspriortothetimesetforthemeeting.Neitherthebusinesstobetransactedat,northepurposeof,anyregularorspecialmeetingoftheBoardofDirectors.needbespecifiedinthenoticeofsuchmeeting,exceptforamendmentstotheseBy-Laws.Ameetingmaybeheldatany'imewithoutnoticeifalltheDirectorsarepresentorifthosenotpresentwaivenotice,ofthemeetingeitherbeforeoraftersuchmeeting.'tIISection3.6.ActionbyConsentofBoarclofDirectors.AnyactionrequiredorpermittedtobetakenatanymeetingoftheBo'ardofDirectorsorofanycommitteethereofmaybetakenwithoutameetingifallmembersoftheBoardorcommittee,asthecase,maybe,consenttheretoinwriting,andthewritingorwritingsarefiledwiththeminutesofproceedingsoftheBoardorcommittee.IISection3.7.ConferenceTelephoneMeetings.MembersoftheBoardofDirectorsoranycommitteethereofmayparticipateinameetingoftheBoardofDirectorsorsuchcommitteebymeansofconferencetelephoneorsimilarcommunicationsequipmentbymeansofwhichallpersonsparticipatinginthemeetingcanheareachother,andsuchparticipationinameetingshallconstitutepresenceinpersonatsuchmeeting.Section3.8.Quorum.SubjecttoSection3.9,awholenumberofDirectorsequaltoatleastamajorityoftheWholeBoardshallconstituteaquorumforthetrans'ac'tionoFbusiness,butifatanymeetingoftheBoardofDirectorsthereshallbelessthanaquorumpresent,amajorityoftheDirectorspresentmayadjournthemeetingfromtimetotimewithoutfurthernotice.TheactofthemajorityoftheDirectorspresentatameetingatwhichaquorumispresentshallbetheactoftheBoardofDirectors.TheDirectorspresentatadulyo'rganizedmeetingmaycontinuetotransactbusinessuntiladjournment,notwithstandingthewithdrawalofenoughDirectorstoleavelessthanaquorum.lfSection3.9.Vacancies.ExceptasotherwiseprovidedfororfixedbyorpursuanttotheprovisionsofArticleIVoftheCertifiicateofIncorporationxelatingtothe'rightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectDirectorsunderspecifiedcircumstances,newly'reateddirectorshipsresultingfromanyincreaseinthenumberofDirectorsandanyvacanciesontheBoardofDirectorsresultingfromdeath,resignation,disqualification,removalorothercauseshallbefilledbytheaffirmativevoteofamajorityoftheremainingDirectorstheninoffice,eventhoughlessthanaquorumoftheBoardofDirectors.Anydirectorelectedinaccordancewiththep'recedingsentenceshallholdofficefortheremainderofsuchunexpiredtermoruntilsuchDirector'ssuccessorshallhavebeendulyelectedorchosenandqualifie'd.NodecreaseinthenumberofDjrectorsconstitutingtheBoardofDirectorsshallshortenthet'ermofanyincumbentDirector.SgSection3.10.Committees,(a)TheBoardofDirectorsmay,byresolutionadoptedbyamajorityoftheWholeBoard,designatecommitteestoexercise,'subjecttoapplicableprovisionsoflaw,anyorallthepowersoftheBoardinthemanagementofthe'businessandaffairsoftheCorporationwhentheBoardisnotinsession,includingwithoutlimitationthepowertodeclaredividendsandtoauthorizetheissuanceoftheCorporation'scapitalstock.EachsuchcommitteeshallconsistoftwoormoreDirectorsoftheCorporation.TheBoardmaydesignateoneormoreDirectorsasalternatemembersofanycommittee,whomayreplaceanyabsentordisqualifiedmemberatanymeetingofthecommittee,Anysuchcommitteemaytotheextentpermittedbylawexercisesuchpowersandshallhavesuchresponsibilitiesasshallbespecifiedinthedesignatingresolution.Intheabsenceordisqualificationofanymemberofsuchcommitteeorcommittees,themeinberormembersthereofpresentatanymeetingandnotdisqualifiedfromvoting,whetherornotconstitutingaquorum,mayunanimouslyappointanothermemberoftheBoardtoactatthemeetingintheplaceofanysuchabsentordisqualifiedmember.EachcommitteeshallkeepwrittenminutesofitsproceedingsandshallreportsuchproceedingstotheBoardwhenrequired.'b)Amajorityofanycommitteemaydetermineitsactionandfixthetimeandplaceofitsmeetings,unlesstheBoardshallotherwise.provide.Notice,ofsuchmeetingsshallbe'giventoeachmemberofthecommitteeinH-'5 themannerprovidedforinSection3.5oftheseBy-Laws.TheBoardshall=havepoweratanytimetofillvacanciesin,tochangethemembershipof,ortodissolveanysuchcommittee.NothinghereinshallbedeemedtopreventtheBoardfromappointingoneormorecommitteesconsistinginwholeorinpartofpersonswhoarenotDirectorsoftheCorporation;provided,however,thatnosuchcommitteeshallhaveormayexerciseanyauthorityoftheBoard.Section3.11.,Removal.SubjecttotherightsofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectDirectorsunderspecifiedcircumstances,anyDirectormayberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleastamajorityofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass.Section3.12,Records.TheBoardofDirectorsshallcausetobekeptarecordcontainingtheminutesoftheproceedingsofthemeetingsoftheBoardandoftheshareholders,appropriatestockbooksandregistersandsuchbooksofrecordsandaccountsasmaybenecessaryfortheproperconductofthebusinessoftheCorporation.ARTICLEIV"OFFICERS'I,Section4.1.ElectedOfficers.TheelectedofficersoftheCorporationshallbeaChairmanoftheBoardofDirectors,aChiefExecutiveOfficer,aPresident,aSecretary,aTreasurer,andsuchotherofficers(including,withoutlimitation,SeniorVicePresidentsandExecutiveVicePresidentsandVicePresidents)astheBoardof.Directorsfromtimetotimemaydeemproper.TheChairmanoftheBoardshallbechosenfromamongtheDirectors.AllofficerselectedbytheBoardofDirectorsshalleachhavesuchpowersanddutiesasgenerallypertaintotheirrespectiveoffices,subjecttothespecificprovisionsofthisArticleIV.SuchofficersshallalsohavesuchpowersanddutiesasfromtimetotimemaybeconferredbytheBoardofDirectorsorbyany~committeethereof.TheBoardoranycommitteethereofmayfromtimetotimeelectsuchotherofficers~(includingoneormoreVicePresidents,Controllers,AssistantSecretariesandAssistantTreasurers),asmaybenecessaryordesirablefortheconductofthebusinessof,theCorporation.SuchotherofficersandagentsshallhavesuchdutiesandshallholdtheirofficesforsuchtermsasshallbeprovidedintheseBy-LawsorasmaybeprescribedbytheBoardorsuchcommittee,asthecasemaybe.Section4.2.ElectionandTermofOffice.ExceptasprovidedinSection4.1l,theelectedofficersoftheCorporationshallbeelectedannuallybytheBoardofDirectorsattheregularmeetingoftheBoardofDirectorsheldaftertheannualmeetingoftheshareholders.Iftheelectionofofficersshallnotbeheldatsuchmeeting,suchelectionshallbeheldassoonthereafterasconvenient.Eachofficershallholdofficeuntilsuchperson'ssuccessorshallhavebeendulyelectedandshallhavequalifiedoruntilpuchperson'sdeathoruntilheshallresignorberemovedpursuanttoSection4.9.Section4.3.CliairmanoftheBoard.TheChairmanoftheBoardshallpresideatallmeetingsoftheshareholdersandoftheBoardofDirectors.TheChairmanofthe'BoardshallperformallsuchotherdutiesasareproperlyrequiredofhimbytheBoardofDirectors.TheChairmanoftheBoardmayalsoserveasPresident,ifsoelectedbytheBoard.TheDirectorsalsomayelectaVice-ChairmantoactintheplaceoftheChairmanuponhisorherabsenceorinabilitytoact.'Section4.4.ChiefExecutiveOfficer.TheChiefExecutive'fficeroftheCorporationshallberesponsibleforthegeneralmanagementoftheaffairsoftheCorporationandshallmakereportstotheBoardofDirectorsandthe'shareholders,andshallseethatallordersandresolutionsoftheBoardofDirectorsandofanycoinmitteethereofarecarriedintoeffect.tSection4.5.President.ThePresidentshallactinageneralexecutivecapacityandshallassisttheChiefExecutiveOfficerintheadministrationandoperationoftheCorporation'sbusinessandgeneralsupervisionofH-6 itspoliciesandaffairs.ThePresident,ifheorsheisalsoaDirector,shall,intheabsenceoforbecauseoftheinabilitytoactoftheChairmanoftheBoard,performalldutiesoftheChairmanoftheBoardandpresideatallmeetingsofshareholdersandoftheBoardofDirectors.\hSection4.6.VicePresidents.EachSeniorVicePresidentandExecutiveVicePresidentandanyVicePresidentshallhavesuchpowersandshallperformsuchdutiesasshallbeassignedtohimbytheBoardofDirectors.iSection4.7.Treasurer.TheTreasurershallexercisegeneralsupervisionoverthereceipt,custodyanddisbursementofcorporatefunds.TheTreasurershallcausethefundsoftheCorporationtobedepositedinsuchbanksasmaybeauthorizedby'heBoardofDirectors,orinsuchbanksasmaybedesignatedasdepositoriesinthemannerprovidedbyresolutionoftheBoardofDirectors.TheTreastlrershallhavesuchfurtherpowersanddutiesandshallbesubjecttosuchdirectionsasmaybegrantedorimposedfromtimetotimebytheBoardofDirectors.Section4.8.Secretary.(a)TheSecretaryshallkeeporcausetobekeptinoneormorebooksprovidedforthatpurpose,theminutesofallmeetingsoftheBoard,thecommitteesoftheBoardandtheshareholders;theSecretaryshallseethatallnoticesaredulygiveninaccordancewiththeprovisions.oftheseBy-Lawsandasrequiredbylaw;shallbecustodianoftherecordsand,thesealoftheCorporationandaffixandattestthesealtoallstockcertificatesoftheCorporation(unlessthesealoftheCorporationonsuchcertificatesshallbeafacsimile,ashereinafterprovided)andaffixandattestthesealtoallotherdocumentstobeexecutedonbehalfof'heCorporationunderitsseal;andshallseethatthebooks,reports,statements,certificatesandotherdocumentsandrecordsrequiredbylawtobekeptandfiledareproperlykeptandfiled;andingeneral,shallperformallthedutiesincidenttotheofficeofSecretaryandsuchotherdutiesasfromtimetotimemaybeassignedtotheSecretarybytheBoard.t(b)AssistantSecretariesshallhavesuchoftheauthorityandperformsuchofthedutiesoftheSecretaryasmaybeprovidedintheseBy-LawsorassignedtothembytheBoardofDirectorsorbytheSecretary.DuringtheSecretary'sabsenceorinability,theSecretary'sauthorityanddutiesshallbepossessedbysuchAssistantSecretaryorAssistantSecretariesastheBoardofDirectorsmaydesignate.Section4.9.Removal.Anyofficerelected,oragentappointed,bytheBoardofDirectorsmayberemovedbytheaffirmativevoteofamajorityoftheWholeBoardwhenever,intheirjudgment,thebestinterestsoftheCorporationwouldbeservedthereby,exceptthattheofficerselectedascontemplatedbySection4.11mayberemovedfromtheofficesspecifiedthereinduringthetermsspecifiedthereinonlybythevoteoftwo-thirdsoftheWholeBoard.NoelectedofficershallhaveanycontractualrightsagainsttheCorporationforcompensationbyvirtueofsuchelectionbeyondthedateoftheelectionofsuchperson'ssuccessor,suchperson'death,suchperson'sresignationorsuchperson'sremoval,whichevereventshallfirstoccur,exceptasotherwiseprovidedinanemploymentcontractorunderanemployeedeferredcompensationplan.Section4.10.Vacancies.Anewlycreatedelectedofficeandavacancyinanyelectedofficebecauseofdeath,resignation,orremovalmaybefilledbytheBoardofDirectorsfortheunexpiredportionofthetermatanymeetingoftheBoardofDirectors.Section4.11.CertainOfficers.Notwithstandinganyprovisionhereintothecontrary,effectiveasof[thefirstanniversaryoftheEffectiveTime],Dr.WilliamJ.CatacosinosshallbeelectedChairmanoftheBoardofDirectorsandChairmanoftheExecutiveCommitteeoftheBoardofDirectorsandMr.RobertB.Catellshallbe.electedChiefExecutiveOfficeroftheCorporation,ineachcase,foratermendingattheregularmeetingoftheBoardofDirectorsheldafterthe[next]annualmeetingofshareholders.ThisSection4.11maybemodifiedonlybytheaffirtnativevoteoftwo-thirdsoftheWholeBoard.H-7 ARTICLEVSTOCKCERTIFICATESANDTRANSFERS'ection5.1.StockCertificatesandTransfers.TheinterestofeachshareholderoftheCorporationshallbeevidencedbycertificatesforsharesofstockinsuchformastheappropriateofficersoftheCorporationmayfromtimetotimeprescribe.ThesharesofthestockoftheCorporationshallbetransferredonthebooksoftheCorporationbytheholderthereofinpersonorbysuchperson'sattorney,uponsurrenderforcancellationofcertificatesforatleastthesamenumberofshares,withanassignmentandpoweroftransferendorsedthereonorattachedthereto,dulyexecuted,withsuchproofoftheauthenticity,ofthesignatureastheCorporationoritsagentsmayreasonablyrequire.Thecertificatesofstockshallbesigned,countersignedandregisteredinsuchmannerastheBoardofDirectorsmaybyresolutionprescribe,whichresolutionmaypermitalloranyofthesignaturesonsuchcertificatestobeinfacsimile.Incaseanyofficer,transferagentorregistrarwhohassignedorwhosefacsimilesigtiaturehasbeenplaceduponacertificatehasceased.tobesuchofficer,transferagentorregistrarbeforesuchcertificateisissued,itmaybeissuedbytheCorporationwiththesameeffectasifheweresuchofficer,transfer,agentorregistrarat.thedateofissue,Section5.2.Lost,Stolenor.'DestroyedCertificates.NocertificateforsharesofstockintheCorporationshallbeissuedinplaceofanycertificateallegedtohavebeenlost,destroyedorstolen,exceptonproductionofsuchevidenceofsuchloss,destructionortheftandondeliveryto'theCorporationofabondofindemnityinsuchamount,uponsuchtermsandsecuredbysuch"surety,astheBoardofDirectorsoranyfinancialofficermayinitsorsuchperson'sdiscretionrequire..,ARTICLEVIMISCELLANEOUSPROVISIONSSection6.1.FiscalYear.[ThefiscalyearoftheCorporationshallbeginonthefirstdayofJanuaryandendonthethirty-firstdayofDecemberofeachyear.]Section6.2.Dividends.TheBoardofDirectorsmayfromtimetotimedeclare,andtheCorporationmaypay,dividendsonitsoutstandingsharesinthemannerandgiponthetermsandconditionsprovidedbylawandtheCertificateofIncorporation.iSection6.3.Seal,Thecorporatesealshallhaveinscribedthereonthewords"CorporateSeal,"theyearofincorporationandaroundthemarginthereofthewords"NewYork."Section6.4.WaiverofNotice.Wheneveranynoticeisrequiredtobe'giventoanyshareholderorDirectoroftheCorporationundertheprovisionsoftheNYBCLortheseBy-Laws,awaiverthereofinwriting,signedbythepersonorpersonsentitledtosuch.notice,whetherbeforeorafterthetimestated,thereinshallbedeemedequivalenttothegivingofsuchnotice.Neitherthebusinesstobetransactedat,northepurposeof,anyannualorspecialmeetingoftheshareholdersortheBoardofDirectorsorcommitteethereofneedbespecifiedinanywaiverofnoticeofsuchmeeting.Section6.5.Audits.Theaccounts,booksandrecordsoftheCorporationshallbeauditedupontheconclusionofeachfiscalyearbyanindependentcertifiedpublicaccountantselectedbytheBoardofDirectors,anditshallbethedutyoftheBoardofDirectorstocausesuchaudittobedoneannually.Section6.6.Resignations.AnyDirectororanyofficer,whetherelectedorappointed,mayresignatanytimebygivingwrittennoticeof.suchresignationtotheChairmanoftheBoard,theChiefExecutiveOfficer,thePresidentortheSecretary,andsuchresignationshallbedeemedtobeeffectiveasofthecloseofbusinessonthedatesaidnoticeisreceivedbytheChairmanoftheBoard,theChiefExecutiveOfficer,thePresidentortheSecretary,oratsuchlatertimeasisspecifiedtherein.,NoformalactionshallberequiredoftheBoardofDirectorsortheshareholderstomakeanysuchresignationeffective.H-8 eARTICLEVIICONTRACTS,PROXIES,ETC.Section7.1.Contracts.Exceptasotherwiserequiredbylaw,theCertificateofIncorporation,aPreferredStockDesignation,ortheseBy-Laws;anycontractsorotherinstrumentsmaybeexecutedanddeliveredinthenameandonthebehalfoftheCorporationbysuchofficerorofficersoftheCorporationastheBoardofDirectorsmayfromtimetotimedirect.SuchauthoritymaybegeneralorconfinedtospecificinstancesastheBoardmaydetermine.TheChairmanoftheBoard,theChiefExecutiveOfficer,thePresidentoranySeniorVicePresident,ExecutiveVicePresidentorVicePresidentmayexecutebonds,contracts,deeds,leasesandotherinstrumentstobemadeorexecutedfororonbehalfoftheCorporation.SubjecttoanyrestrictionsimposedbytheBoardofDirectors,theChiefExecutiveOfficer,thePresidentoranySeniorVicePresident,ExecutiveVicePresidentorVicePresidentoftheCorporationmaydelegatecontractualpowerstoothersundersuchperson'jurisdiction,itbeingunderstood,however,thatanysuchdelegationofpowershallnotrelievesuchofficerofresponsibilitywithrespect'totheexerciseofsuchdelegatedpower.Section7.2.Proxies,UnlessotherwiseprovidedbyresolutionadoptedbytheBoardofDirectors,theChairmanof,theBoard,theChiefExecutiveOfficer,thePresidentoranySeniorVicePresident,ExecutiveVicePresidentorVicePresidentmayfromtimetotimeappointanattorneyorattorneysoragentoragentsoftheCorporation,inthenameandonbehalfoftheCorporation,tocastthevoteswhichtheCorporationmaybeentitledtocastastheholderofstockorothersecuritiesinanyothercorporation,anyofwhosestockorothersecuritiesmaybeheld'ytheCorporation,atmeetingsoftheholdersofthestockorothersecuritiesofsuchothercorporation,ortoconsentinwriting,inthenameof.theCorporationassuchholder,toanyactionbysuchothercorporation,andmayinstructthepersonorpersonssoappointedastothemannerofcastingsuchvotesorgivingsuchconsent,andmayexecuteorcausetobeexecutedinthenameandonbehalfoftheCorporationandunderitscorporatesealorotherwjse,allsuchwrittenproxiesorotherinstrumentsashemaydeemnecessaryorproperinthepremisesARTICLEVIIIAMENDMENTSSection8.1.Amendments.Exceptasotherwisespecifiedherein,theBy-LawsmaybealteredorrepealedandnewBy-Lawsmaybeadopted(1)atanyannualorspecialmeetingofshareholdersbytheaffirmativevoteoftheholdersofamajorityofthevotingpowerofthestockissuedandoutstandingandentitledtovotethereat,provided,however,thatanyproposedalterationorrepealof,ortheadoptionofanyBy-Lawinconsistentwith,Section2.2,2.7or2.10ofArticleIIorSection3.9or3.11ofArticleIIIoftheBy-Lawsbytheshareholdersshallrequiretheaffirmativevoteoftheholdersofatleast80%ofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass,andprovided,further,however,that,inthecaseofanysuchshareholderactionataspecialmeetingofshareholders,noticeoftheproposedalteration,repealoradoptionofthenewBy-LaworBy-Lawsmustbecontainedinthenoticeofsuchspecialmeeting,or(2)bytheaffirmativevoteofamajorityoftheWholeBoard.H-9
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AnnexISECTION623ANDSECTION910OFTHENEWYORKBUSINESSCORPORATIONLAW5623.Proceduretoenforceshareholder'srighttoreceivepaymentforshares(a)A'hareholderintendingtoenforcehisrightunderasectionofthischaptertoreceivepaymentforhissharesiftheproposedcorporateactionreferredtothereinistakenshallfilewiththecorporation,beforethemeetingofshareholdersatwhichtheactionissubmittedtoavoteoratsuchmeetingbutbeforethevote,writtenobjectiontotheaction.Theobjectionshallincludeanoticeofhiselectiontodissent,hisnameandresidenceaddress,thenumberandclassesofsharesastowhichhe'dissentsandademandforpaymentofthefairvalueofhissharesiftheactionistaken.Suchobjectionisnotrequiredfromanyshareholdertowhomthecorporationdidnotgivenoticeof:suchmeetinginaccordancewiththischapterorwheretheproposedactionisauthorized.bywrittenconsentofshareholderswithoutameeting.II(b)Withintendaysaftertheshareholders'uthorizationdate,which,termasusedinthissectionmeansthedateonwhichtheshareholders'oteauthorizingsuchactionwastaken,orthedate.onwhichsuchconsent,withoutameetingwasobtainedfromtherequisiteshareholders,thecorporationshallgivewrittennoticeofsuchauthorizationorconsentbyregisteredmailtoeachshareholderwhofiledwrittenobjectionorfromwhomwrittenobjectionwasnot,required,exceptinganyshareholderwhovotedfororconsentedinwritingtotheproposedactionandwhotherebyisdeemedtohaveelectednottoenforcehisrighttoreceivepaymentforhisshares,(c)Withintwentydaysafterthegivingofnoticetohim,anyshareholderfromwhomwrittenobjectionwasnotrequiredandwhoelectstodissentshallfilewiththecorporationawrittennoticeofsuchelection,statinghisnameandresidenceaddress,th'enumberandclassesofsharesastowhichhedissentsandademandforpaymentofthefairvalueofhisshares.Anyshareholderwhoelectstodissentfromamergerundersection905(Mergerofsubsidiarycorporation)orparagraph(c)'ofsection907(Mergerorconsolidationofdomesticandforeigncorporations)orfromashareexchangeunderparagraph(g)ofsection913(Shareexchanges)shallfileawrittennoticeofsuchelectiontodissentwithintwentydaysafterthegivingtohiinofacopyof.theplanofmergerorexchangeoranoutlineofthematerialfeaturesthereofundersection905or913.(d)Ashareholdermaynotdissentastolessthanalloftheshares,astowhichhehasarighttodissent,heldbyhimofrecord,thatheownsbeneficially.Anomineeorfiduciarymaynotdissentonbehalfofanybeneficialownerastolessthanallofthesharesofsuchowner,astowhichsuchnomineeorfiduciary,hasarighttodissent,heldofrecordbysuchnomineeorfiduciary.(e)Uponconsummationofthecorporateaction,theshareholdershallceasetohaveanyoftherightsofashareholderexcepttherighttobepaidthefairvalueofhissharesandanyotherrightsunderthissection.Anoticeofelectionmaybewithdrawnbytheshareholderatanytimepriortohisacceptanceinwritingofanoffermadebythecorporation,asprovidedinparagraph(g),but'innocaselaterthansixtydaysfromthedateofconsummationofthecorporateaction"exceptthatifthecorporationfailstomakeatimelyoffer,asprovidedinparagraph(g),thetimeforwithdrawinganoticeofelectionshallbeextendeduntilsixtydaysfromthedateanofferismade.Uponexpirationofsuchtime,"withdrawalofa.noticeofelectionshallrequirethewrittenconsentofthecorporation.Inordertobeeffective,withdrawalofanoticeofelectionmustbeaccompaniedbythereturntothecorporationofanyadvancepaymentmadetotheshareholderasprovidedinparagraph(g).,ifanoticeofelectioniswithdrawn,orthecorporateactionisrescinded,oracourtshalldeterminethattheshareholderisnotentitledtoreceivepaymentforhisshares,ortheshareholdershallotherwiselosehisdissenter'srights,heshallnothavetherighttoreceivepaymentforhissharesandheshallbereinstatedtoallhisrightsasashareholderasoftheconsummationofthecorporateaction,includinganyinterveningpreemptiverightsandtheright'topaymentofanyinterveningdividendorotherdistributionor,ifanysuchrightshaveexpiredoranysuchdividendordistributionotherthanincashhasbeencompleted,inlieuthereof,attheelectionofthecorporation,thefairvaluethereofincashasdeterminedbytheboardasofthetimeofsuchexpirationorcompletion,butwithoutprejudiceotherwisetoanycorporateproceedingsthatmayhavebeentakenintheinterim.(f)Atthetimeoffilingthenoticeofelectiontodissentorwithinonemonththereaftertheshareholderofsharesrepresentedbycertificatesshallsubmitthecertificatesrepresentinghissharestothecorporation,ortoitsI-1 transferagent,whichshallforthwithnoteconspicuouslythereonthatanoticeofelectionhasbeenfiledandshall~returnthecertificatestotheshareholderorotherpersonwhosubmittedthemonhisbehalf.Anyshareholderofsharesrepresentedbycertificateswhofailstosubmithiscertificatesforsuchnotationashereinspecifiedshall,attheoptionofthecorporationexercisedbywritten'oticetohimwithinforty-fivedaysfromthedateoffilingofsuchnoticeofelectiontodissent,losehisdissenter'srightsunlessacourt,forgoodcauseshown,shallotherwise'irect.Upontransferofacertificatebearingsuchnotation,each"newcertificateissuedthereforshallbearasimilarnotationtogetherwiththenameoftheoriginaldissentingholderofthesharesandatransfereeshallacquirenorightsinthecorporation,exceptthose,whichtheoriginaldissentingshareholderhad,atthetimeoftransfer.(g)Withinfifteendaysaftertheexpirationoftheperiodwithinwhichshareholdersmayfiletheirnoticesofelectiontodissent,orwithinfifteendaysaftertheproposedcoiporateactionisconsummated,whicheverislater(butinnocaselaterthanninetydaysfromtheshareholders'uthorizationdate),thecorporationor,inthecaseofamergerorconsolidation,theSurvivingornewcorporation,shallmakeawrittenofferbyregisteredmailtoeachshareholderwhohasfiledsuchnoticeofelectiontopayforhissharesataspecifiedpricewhichthecorporationconsiderstobetheirfairvalue.Suchoffershallbeaccompaniedbyastatementsettingforththeaggregatenumberofshareswithrespecttowhichnoticesofelectiontodissenthavebeenreceivedandtheaggregatenumberofholdersofsuchshares.Ifthecorporateactionhasbeenconsummated,suchoffershallalsobeaccompaniedby(1)advancepaymenttoeachsuchshareholderwhohassubmittedthecertificatesrepresentinghissharestothecorporation,asprovidedinparagraph(f),ofak'amountequaltoeightypercentoftheamountofsuchoffer,or(2)astoeachshareholderwhohasnotyetsubmittedhiscertificatesastatementthatadvancepaymenttohimofanamountequaltoeightypercentoftheamountofsuchofferwillbemadebythecorporationpromptlyuponsubmissionofhis;certificates.Ifthe.corporateactionhasnotbeenconsummatedatthetimeofthemakingoftheoffer,suchadyancepaymentorstatementastoadvancepaymentshallbesenttoeachshareholderentitledtheretoforthwithuponconsummation,,ofthecorporateaction.Everyadvancepaymentorstatementastoadvancepaymentshallincludeadvicetotheshareholdertotheeffectthatacceptanceofsuchpaymentdoesnotconstituteawaiverofanydissenters'ights.Ifthecorporateactionhasnotbeenconsummatedupontheexpirationof,theninetydayperiodaftertheshareholders'uthorizationdate,theoffermaybeconditionedupontheconsummationofsuchaction.Suchoffershallbemadeatthesainepricepersharetoalldissentingshareholdersofthesameclass,orifdividedintoseries,ofthesameseriesandshallbeaccompaniedbyabalancesheetofthecorporationwhosesharesthedissentingshareholderholdsasofthelatestavailabledate,whichshallnotbeearlierthantwelvemonthsbeforethemaking'ofsuchoffer,andaprofitandloss'tatementorstatementsfornotlessthanatwelvemonthperiod'endedonthedateofsuchbalancesheetor',ifthecorporationwasnotinexistencethroughoutsuchtwelvemonthperiod,fortheportionthereofduringwhichitwasinexistence.Notwithstanding'he'foregoing,thecorporationshallnotberequiredtofurnishabalancesheetorprofitandlossstatementorstatementstoanyshareholdertowhomsuchbalancesheetorprofitandlossstatementorstatementswerepreviouslyfurnished,,norif.inconnectionwithobtainingtheshareholders'uthorizationfororconsenttotheproposedcorporateactiontheshareholderswerefurnishedwithaproxyorinformationstatement,whichincludedfinancialstatements,pursuanttoRegulation14AorRegulation14Cof,theUnitedStatesSecuritiesandExchangeCommission.IfwIthinthirtydaysafterthemakingofsuchoffer,thecorporationmakingthe,offerandanyshareholderagreeuponthepricetobepaidforhisshares,paymentthereforshallbemadewithinsixtydaysafterthemakingofsuchofferortheconsummationoftheproposedcorporateaction,whicheverislater,uponthesurrenderofthecertificates'foranysuchsharesrepresentedbycertificates.(h)Thefollowingprocedureshallapplyifthecorporationfailstomakesuchofferwithinsuchperiodoffifteendays,orifitm'akestheofferandanydissentingshareholderorshareholdersfailtoagreewithitwithintheperiodofthirtydays'thereafteruponthepricetobe,paidfortheirshares:(1)Thecorporationshall,within'wentydaysaftertheexpirationofwhicheverisapplicableofthetwoperiodslastmentioned,instituteaspecialproceedinginthesupremecourtinthejudicialdistrictinwhichtheofficeofthecorporationislocatedtodeterminetherightsofdissentingshareholdersand'tofixthefairvalueoftheirshares.If,inthecaseofmergerorconsolidation,thesurvivingornewcorporationisaforeigncorporationwithoutanofficeinthisstate,suchproceedingshallbebroughtinthecountywheretheofficeofthedomesticcorporation,whosesharesaretobevalued,waslocated.I-2 (2)Ifthecorporationfailstoinstitutesuchproceedingwithinsuchperiodoftwentydays,anydissentingshareholdermayinstitutesuchproceedingforthesamepurposenotlaterthanthirtydaysaftertheexpirationofsuchtwentydayperiod.Ifsuchproceedingisnotinstitutedwithinsuchthirtydayperiod,alldissenter'srightsshallbelostunlessthesupremecourt,forgoodcauseshown,shallotherwisedirect.I(3)Alldissentingshareholders,exceptingthosewho,asprovidedin"paragraph(g),haveagreedwiththecorporationuponthepricetobepaidfortheirshares,shallbemadepartiesto.suchproceeding,whichshallhavetheeffectofanactionquasiinreagainsttheirshares.'fhecorporationshallserveacopyofthepetitioninsuchproceedinguponeachdissentingshareholderwhoisaresidentofthisstateinthemannerprovidedbylawfortheserviceofasummons,anduponeachnonresidentdissentingshareholdereitherbyregisteredmailandpublication,orinsuchoIhermannerasispermittedbylaw.Thejurisdictionofthecourtshallbeplenaryandexclusive.t(4)Thecourtshalldeterminewhethereachdissentingshareholder,astowhomthecorporationrequeststhecourttomakesuchdetermination,'sentitledtoreceivepaymentforhisshares.Ifthecorporationdoesnotrequestanysuchdeterminationorifthecourtfindsthatanydissentingshareholderissoentitled,itshallproceedtofixthevalueoftheshares,which,forthepurposesofthissection,shallbethefairvalueasofthecloseofbusinessonthedaypriortotheshareholders'authorizationdate.Infixingthefairvalueoftheshares,thecourtshallconsiderthenatureofthetransactiongivingrisetotheshareholder'srighttoreceivepaymentforsharesanditseffectsonthecorporationanditsshareholders,theconceptsandmethodsthencustomaryintherelevant,securitiesandfinancialmarketsfordeterminingfairvalueofsharesofacorporationengaginginasimilartransactionundercomparablecircumstances'andallotherrelevantfactors.Thecourtshalldeterminethefair,valueoftheshareswithoutajuryandwithoutreferraltoanappraiserorreferee.Uponapplicationbythecorporationorbyanyshareholderwhoisapartytotheproceeding,thecourtmay,initsdiscretion,permitpretrialdisclosure,including,butnotlimitedto,disclosureofanyexpert,'sreportsrelatingtothefairvalueoftheshareswhetherornotintendedforuseatthetrialintheproceedingandnotwithstanding'subdivision(d)ofsection3101ofthecivilpracticelawandrules.(5)Thefinalorderinthe.proceedingshallbeenteredagainstthecorporationinfavorofeachdissentingshareliolderwhoisapartytotheproceedingandisentitledtheretoforthevalueofhissharessodetermined.(6)Thefinalordershallincludeanallowanceforinterestatsuchrateasthecourtfindstobeequitable,from,thedatethecorporateactionwasconsummatedtothedateof"payment.Indeterminingtherateofinterestthecourtshallconsiderallrelevantfactors,includingtherateofinterestwhichthecorporationwouldhavehadtopaytoborrowmoneyduringthependencyoftheproceeding.Ifthecourtfindsthattherefusalofanyshareholdertoacceptthecorporateofferofpaymentforhisshareswasarbitrary,vexatiousor'otherwisenotingoodfaith,nointerestshallbeallowedtohim."(7)Eachpartytosuchproceedingshallbearitsowncostsandexpenses,includingthefeesandexpensesofitscounselandofanyexpertsemployedbyit.Notwithstandingtheforegoing,thecourtmay,initsdiscretion,apportionandassessalloranypartofthecosts,expensesandfeesincurredbythecorporationagainstanyorallofthedissentingsharehoMerswhoarepartiestotheproceeding,includinganywhohavewithdrawntheirnoticesofelectionasprovidedinp'aragraph(e),ifthecourtfindsthattheirrefusaltoacceptthecorporateofferwasarbitrary,vexatiousorotherwisenotingoodfaith.'Thecourtmay,initsdiscretion,apportionandassessallorany,partofthecosts,expensesandfeesincurredbyanyorallofthedissentingshareholderswhoarepartiestotheproceedingagainstthecorporationifthecourtfindsanyofthefollowing:(A)thatthefairvalueofthesharesasdeterminedmateriallyexceedstheamountwhichthecorporation,offeredtopay;(8)thatnoofferorrequired.advancepaymentwas,madebythecorporation;(C)thatthe.corporationfailedtoinstitutethespecialproceedingwithintheperiodspecifiedtherefor;or(D)thattheactionofthecorporationincomplyingwithitsobligationsasprovidedinthissectionwasarbitrary,vexatiousorotherwisenotingoodfaith.Inmakinganydeterminationasprovidedinclause(A),thecourtmayconsiderthedollaramountorthepercentage,orboth,bywhichthefairvalueofthesharesasdeterminedexceedsthecorporateoffer.I-3
,(8)Withinsixtydaysafterfinaldeterminationoftheproceeding,thecorporationshallpaytoeach,,dissentingshareholdertheiamountfoundtobeduehim,uponsurrenderofthecertificatesforanysuch.sharesrepresentedbycertificates.~'i)Sharesacquiredbythecorporationuponthepaymentoftheagreedvaluetherefororoftheamountdueunderthefinalorder,asprovidedinthissection,shallbecome,treasurysharesorbecancelledasprovidedinsection,515(Reacquiredshares),exceptthat,inthecaseofamergerorconsolidation,theymaybeheldanddisposedofastheplanofmergerorconsolidationmayotherwiseprovide.1(j)Nopaymentshallbemadetoadissentingshareholderunderthissectionatatimewhenthecorporationisinsolventorwhensuchpaymentwouldmakeitinsolvent.Insuchevent,thedissentingshar'eholdershall,athisoption:(1)Withdrawhisnoticeofelection,whichshallinsucheventbedeemedwithdrawnwiththewrittenconsent'ofthecorporation;or*.~(2)Retainhisstatusasaclaimantagainstthecorporationand,ifitisliquidated,besubordinatedtotherightsofcreditorsofthecorporation,buthaverightssuperior.tothenon-dissentingshareholders,andifitisnot,liquidated,retainhisrighttobepaidforhisshares,whiphrightthecorporationshallbeobligedtosatisfywhentherestrictionsofthisparagraphdonotapply.(3)Thedissentingshareholdershallexercisesuchoptionundersubparagraph(1)or(2)bywrittennoticefiledwiththecorporationwithinthirtydaysafterthe'corporationhasgivenhimwrittennoticethatpaymentforhissharescannotbemadebecauseoftherestric'tionsofthisparagraph.Ifthe'dissentingshareholderfailstoexercisesuchoptionasprovided,thecorporationshallexercisetheoptionbywrittennoticegiventohimwithintwentydaysaftertheexpirationofsuchperiodofthirtydays.i(k)Theenforcementbyashareholderofhisrighttoreceivepaymentforhissharesinthemannerprovidedhereinshallexcludetheenforcementbysuchshareholderofanyotherrighttowhichhemightotherwisebeentitledbyvirtueofshareownership,exceptasprovidedinparagraph(e),andexceptthatthissectionshallnotexcludetherightofsuchshareholdertobringormaintainanappropriateactiontoobtainrelief'onthegroundthatsuchcorporateactionwillbeorisunlawfulorfrauduleritastohim.(1)Exceptasotherwiseexpresslyprovidedinthissection,anynoticetobegivenbyacorporationtoashareholderunderthisse'ctionshallbegiveninthemannerprovidedinsection605(Noticeofmeetingsofshareholders).(m)Thissectionshallnotapplytoforeigncorporationsexceptasprovidedinsubparagraph(e)(2)ofsection907(Mergerorconsolidationofdomesticandforeigncorporations).ei5910.Rightofshareholdertoreceivepaymentforsharesupon"mergerorconsolidation,'rsale,lease,exchangeorother'ispositionofassets,orshareexchange'I4(a)Ashareholderofadomesticcorporationshall,subjecttoandbycomplyingwithsection623(Proceduretoenforceshareholder'srighttoreceivepaymentforshares),havetherighttoreceivepaymentofthefairvalueofhissharesandtheotherrights,andbenefitsprovidedbysuchsection,inthefollowingcases:(1)Anyshareholderentitledtovotewhodoesnotassenttothetakingofanactionspecifiedinsubparagraphs(A);(B)and(C).i,(A)Anyplanofmergeror'consolidationtowhichthecorporationisaparty;exceptthattherightto'eceivepaymentofthefairvalueofhissharesshallnotbeavailable:if1(i)Toashareholderoftheparentcorporationinamergerauthorizedbysection905(Mergerofparentandsubsidiarycorporations),orparagraph(c)ofsection907(Mergerorconsolidationofdomesticandforeigncorporations);and1-4 (ii)Toashareholderofthesurvivingcorporationinamergerauthorizedbythisarticle,otherthanamergerspecifiedinsubparagraph(i),unlesssuchmergereffectsoneormoreofthechangesspecifiedinsubparagraph(b)(6)ofsection806(Provisionsastocertainproceedings)intherightsofthesharesheldbysuchshareholder.(B)Anysale,lease,exchangeorotherdispositionofallorsubstantiallyalloftheassetsofacorporationwhichrequiresshareholderapprovalundersection909(Sale,lease,exchangeorotherdispositionofassets)otherthanatransactionwhollyforcashwheretheshareholders'pprovalthereofisconditioneduponthedissolutionofthecorporationandthedistributionofsubstantiallyallofitsnetassetstotheshareholdersinaccordancewiththeirrespectiveinterestswithinoneyearafterthedateofsuchtransaction.(C)Anyshareexchangeauthorizedbysection913inwhichthecorporationisparticipatingasasubjectcorporation;exceptthattherighttoreceivepaymentofthefairvalueofhissharesshallnotbeavailabletoashareholderwhoseshareshavenotbeenacquiredintheexchange.(2)Anyshareholderofthesubsidiarycorporationinamergerauthorizedbysection905orparagraph(c)ofsection907,orinashareexchangeauthorizedbyparagraph(g)ofsection913,whofileswiththecorporationawrittennoticeofelectiontodissentasprovidedinparagraph(c)ofsection623.1-5
[THISPAGEINTENTIONALLYLEFTBLANK]tI ANNEXJTHELILCOMEE<TINGPROPOSALSITEM3-E<LECTIONOF'IILCODIRECTORSCurrently,allnomineesareDirectors.JamesT.FlynnwasappointedaDirectorofLILCObyitsBoardofDirectorseffectiveDecember1996.Ifelected,thetwelvepersonsnamedbelowwillholdofficeforoneyearoruntiltheirsuccessorsare,dulyelectedorchosenandqualified.ShouldanyofthepersonshereinafternamedadvisetheCorporateSecretaryofLILCOpriortotheLILCOMeetingthat,theywillbeunabletoserveafterbeingelected,thesharesrepresentedbyproxywillbevotedfortheelectionofanysubstitutenomineeornomineesasthepresentBoardofDirectorsmayrecommendtotheProxyCommittee.Ifnosubstituteisrecommended,the,sizeoftheBoardmaybereduced.LILCOdoesnotanticipatethatanyofthenomineesnamedhereinforelectionbytheholdersofLILCOCommonStockwillbeunabletoservethefulltermofofficetowhichtheymaybeelected.LILCOrecommendsavoteFORthetwelvepersonsnamedbelowtoserveasmembersoftheBoardofDirectors.LILCO'snomineesforelectionasDirectorsare:WILLIAMJ.CATACOSINOS-Age67CItainnanoftheBoardandChiefExecutiveOJJtcerChairman-ExecutiveCommitteeDirectorsince1978LILCOsharesownedBoard/Boardcommitteeattendance14,707100%tIIChairmanoftheBoardofDirectorsandChief.ExecutiveOfficer("CEO")ofLILCOsinceJanuary1984;,PresidentofLILCOfromMarch1984toJanuary1987andfromMarch1994toDecember1996.ResidentofMillNeck,LongIsland.Receivedbachelorofsciencedegree,mastersdegreeinbusinessadministrationandadoctoraldegreeineconomicsfromNewYorkUniversity.Member,boardsofU.S.LifeCorporation;LongIslandAssociation;BusinessAllianceforaNew,NewYork;FirstNationalBankofL.I.;andamemberoftheAdvisoryCommitteeoftheHuntingtonTovtnshipChamberFoundation.Formerchairmanandchiefexecutiveofficer-ofApplied.DigitalDataSystems,Inc.,Hauppauge,NewYork;chairmanoftheboardandtreasurerofCorometricSystems,Inc.ofWallingford,Connecticut;andassistantdirectoratBrookhavenNationalLaboratory,Upton,NewYork.JOHNH.TALMAGE-Age67Partner,H.R.Tahnage&SonFarmRiverhead,NewYorkChairman-NominatingCommitteeMember-ExecutiveCo>nmitteeandtheCotnpensationandManagementAppraisalCotnmitteeDirectorsince1982LILCOsharesowned,Board/Boardcommitteeattendance1,505*100%GraduateoftheCollegeof'AgricultureandLifeSciences,CornellUniversity.Presidentsince1992anddirectorsince1960,Friar'sHeadFarm,Inc.;Chairman,boardofdirectors,H.P.Hood,Inc.ofBoston,Massachusetts,1980to1995;director,Agway,Inc.,1967to1995;CurticeBurnsFoods,Inc.,1969to1984;and*SuffolkCountyFederalSavingsandLoanAssociation,1975to1982.
BASILA.PATERSON-Age71Partner,LawFinnofDirectorsince1983Meyer,Suozzi,EnglishandKlein,P.C.LILCOsharesowned,,Board/BoardcolnmitteeattendanceChairman-AuditCommitteeMember-ExecutiveConunittee2,025*89%ReceivedjurisdoctoratefromSt.John'sUniversitySchoolofLaw.ServedasSecretaryofStateofNewYorkfrom1979to1982,asDeputyMayorofNew''ork"City,asa'NewYorkStateSenatorandasacommissionerofthePortAuthorityofNewYorkandNewJersey.'PartnerinthelawfirmofMeyer,Suozzi,EnglishandKlein,'.C.,MineolaNewYork.Servedasa'rofessoratanumberofuniversities,asamemberoftheboardofeditorsoftheNewYorkLawJournalandasamemberoftheNewYorkStateCommissiononJudicialNomination.GEORGEBUGLIARELLO-Age70Chancellor,PolytechnicUnivetsityChairman-CotnpensationandManagementAppraisalCotnmitteeMember-ExecutiveConunitteeDirectorsince1990LILCOsharesownedBoard/Boardcommitteeattendance1,473*95%ReceiveddoctorofsciencedegreeinengineeringfromMassachusettsInstituteofTechnologyandseveralhonorarydegreesfromotherinstitutions.PresidentofPolytechnicUniversityfrom1973toJuly1994,presentlyholdsthepositionofChancellor.Member,boardofdirectorsoftheLordCorporation,SymbolTechnologies,ComtechTelecommunicationsCorp.,theTeagleFoundation,theJuraCorp.,theGreenwallFoundationandSpectrumInformationTechnologies,Inc.MemberoftheCouncilonFo'reignRelationsandNationalAcademyofEngineering.Fellow,theAmericanSocietyofCivilEngineers,theAmer'icanAssociationfortheAdvancementofScienceandtheNewYork'AcademyofMedicine.Chairman,BoardofInfrastructureandConstructedEnvironment,NationalResearchCouncil.PreviouslyheldaNATOSeniorFacultyFellowshipattheTechnicalUniversityofBerlinandthechairmanshipontheCommitteeonScience,EngineeringandPublicPolicyoftheAmericanAssociationfortheAdvancementofScience.FormermemberoftheScientificCommitteeoftheSummerSchoolonEnvironmentalDynamicsinVenice.GEORGEJ.SIDERIS-Age70RetiredSeniorVicePresidentLongIslandLightingCompany,Member-NominatingCommitteeandPlanningandEnvironmentCotnmitteeDirectorsince1991LILCOsharesowned.Board/BoardCommitteeattendance4,851*100%ReceivedbachelorsdegreeineconomicsfromNewYorkUniversity.JoinedLILCOin1984asVicePresidentofFinanceandChiefFinancialOfficer.BecameSeniorVicePresidentofFinancein1987andretiredinJanuary1992.Member,boardofdirectorsofUtilitiesMutualInsuranceCompanythroughDecember1994..Self-employedasamanagementandfinancialconsultant,1981-1984.PreviouslyservedasavicepresidentofQualpecoServices,Inc.,andasavicepresidentandchairmanoftheNortheastOperationsGroupofU.S.Industries,Inc.*SeeNotestoLILCOSecurityOwnershipTableonpage93.J-2 A.JAMESBARNE<S-Age54Dean,IndianaUniversitySchoolofPublicandEnvironmentalAgnirsDirectorsince1992LILCOsharesowtiedBoard/Boardconunitteeattendance1,473*100&#xc3;oChairman-PlanningandEnvironmentComtnitteeMember-ExecutiveContmittee,CompensationandManagementAppraisalCommitteeReceivedundergraduatedegreefromMichiganStateUniversityandjurisdoctoratefromHarvardLawSchool.ServedasGeneralCounseloftheU.S.DepartmentofAgriculturefrom1981to1983,asGeneralCounseloftheU.S.EnvironmentalProtectionAgencyfrom1983to"1984andasDeputyAdministratoroftheAgencyfrom1985to1988.PreviouslywasapartnerinthelawfirmofBeveridge,FairbanksandDiamond,Washington,D.C.andalsoservedwiththeU.S.DepartmentofJustice.JoinedtheIndianaUniversitySchoolofPublicandEnvironmentalAffairsasitsDeanin1988.RICHARDL.SCHMALENSEE<-Age53Director,MassachusettsInstituteofTeclniologyCenterforEnergyandEnvironmentalPolicyResearchDirectorsince1992LILCOsharesownedBoard/Boardconunitteeattendance1,073487%Member-CompensationandManagementAppraisalCommitteeandPlanningandEnvironmentCommitteeReceiveddoctoraldegreeineconomicsandbachelorofsciencedegreeineconomics,politicsandsciencefromtheMassachusettsInstituteofTechnology("MIT").GordonY.BillardProfessorofEconomicsandManagementatMIT'sSloanSchoolsince1988.ServedasmemberofthePresident's'CouncilofEconomicAdvisorsfrom1989to1991.Currently,DeputyDeanoftheMITSloanSchoolofManagementandDir'ectoroftheMITCenterforEnergyandEnvironmentalPolicyResearch.ConsultanttoavarietyofgovernmentagenciesandprivatefirtnsthroughtheNationalEconomicResearchAssociatesInc.'onarangeofissuesincludingaspectsofutilityregulation.RENSOL.CAPORALI-Age64SeniorVicePresidentofEngineeringandBusinessDevelopmentRaytheonCompanyDirectorsince1992LILCOsharesowned,Board/Boardcommitteeattendance2,144*100%Member-AuditCommittee~*IIReceiveddoctorateandtwomastersdegreesinAeronauticalEngineeringfromPrincetonUniversityandamastersofmechanicalengineeringdegreeandbacheforofcivilengineeringdegreefromClarksonCollegeofTechnology.ServedasPresidentofGrummanCorporation'sAircraftSystemsDivisionsince1985,ViceChairmanofCorporateTechnology1988to1990andChairmanandCEOfrom1990toJune1994.ConsultanttoandmemberoftheboardofdirectorsofNoithrop-GrummanfromJune1994toMarch1995.ServesontwoPrincetonUniversityAdvisoryCouncils.FormerChairmanoftheAerospaceIndustriesAssociation'sBoardofGovernorsandExecutiveCommittee.PresentlycorporateSeniorVicePresidentofEngineeringandBusinessDevelopmentfortheRaytheonCompany.MemberoftheNationalAcademyofEngineering.*SeeI<IotestoLILCOSecurityOwtiershipTableonpage93.J-3 PETERO.CRISP-Age64ChairmanVetirock,Inc.Directorsince1992LILCOsharesownedBoard/Boardcorn)nitteeattendance973*100%Member-NominatingCommitteeandAuditCommitteeIReceivedbachelors'degreefromYaleUniversityandmastersdegreeinbusinessadministrationfromHarvardBusinessSchool.GeneralPartner,VenrockAssociates,aventurecapitallimitedpartnership,since1969.Chairman,Venrock,Inc.,thecorporationwhichmanagesVenrockAssociates,since1980.Directo'rofAmericanSuperconductorCorporation,Evaris&SutherlandComputerCorporation,ThermoPowerCorporation,ThermedicsInc.,ThermoElectronCorporation,ThermoTrexCorporationandU.S.TrustCorporationaswell.asanumberofotherprivatecompanies.MemberoftheboardsoftheMemorialSloanKetteringCancerCenterandNorthShoreUniversityHospital,KATHERINED.ORTEGA-Age62ForinerTreasureroftheUnitedStatesDirectorsl'Itce1993LILCOsharesownedBoard/BoardConunitteeattendance.',801*100%Member-NominatingCommitteeandAuditCommitteeReceivedbachelorofartsdegreeinbusinessandeconomicsfromEasternNewMexicoUniversityandthreehonorarydoctoroflawdegreesandanhonorarydoctorofsocialsciencedegree.TreasureroftheUnitedStatesfrom1983to1989.ServedasacommissioneroftheCopyrightRoyaltyTribunal,amemberofthePresident'sAdvisoryCommitteeonSmallandMinorityBusinessandanalternaterepresentativetotheUnitedNationsGeneralAssembly.MemberoftheboardofdirectorsofUltramarDiamondShamrockCorp.,TheKrogerCompany,Ralston,PurinaCompany,RayonierInc.andCatalyst.MemberoftheComptrollerGeneral'ConsultantPaneLAdvisoryBoardMemberofWashingtonMutualInvestorsFund.1,273*92goC.'ICKIL.FULLER-Age39SeniorVicePresidentDirectorsince1994AllianceCapitalManagementLILCO:sharesownedCorporationBoard/BoardCommitteeattendanceMentber-NominatingCommitteeandPlanningandEnviromnentCotnmitteeReceivedbachelorsdegreeatRooseveltUniversityandmastersdegreeinbusinessadministrationattheUniversityofChicagoandisaCertifiedPublicAccountant.ServedasanassociateinMorganStanleyandCo.'scorporatefinancedepartmentfrom1981to1983.ServedasaratingofficeratStandard&Poor'sCorporationfrom1984to1985.JoinedEquitableCapitalManagementCorporation("ECM")in1985asaseniorinvestmentmanager,holdingvariouspositionsincludingManagingDirectorfrom1989to1993.VicePresidentofAllianceCapitalManagementCorporation("Alliance"),whichacquiredECivl,from1993to1994;currentlyholdsthepositionofSeniorVicePresidentofAlliance.MemberoftheBoardofTrusteesofNorthCarolinaAgricultural&TechnologyUniversity.IncompliancewithSection305(b)ofthe.,FederalPowerAct,Ms.Fullerhasauthorizationtoholdthepositionofanofficerordirectorofapublicutilityandatthesametimethepositionofanofficerordirectorofa'firmthatisauthorizedtounderwriteorparticipateinthemarketingofthesecuritiesofapublicutility.*SeeNotestoLILCOSecuriiyOwnershipTableonpage93.
eJAMEST.FLYNN-Age63PresidentantiChiefOperatingOfhcerDirectorsince1996LILCOsharesownedBoard/BoardCommitteeattendance5,5091007o-AppointedbytheBoardofDirectors,Mr.FlynnbecameaDirectorofLIL'COinDecember1996.HoldsabachelorofsciencedegreeinmechanicalengineeringfromBucknellUniversityandisaLicensedProfessionalEngineer.JoinedLILCOinOctober1986asVicePresidentofFossilProductionandwaspromotedtoGroupVicePresident,EngineeringandOperationsiriApril1992.AppointedExecutive'VicePresidentandChiefOperatingOfficerinMarch1994.HasservedasPresidentandChiefOperatingOfficersinceDecember1996.LILCOBOARDOFDIRECTORSThebusinessandaffairsofLILCOaremanagedunderthedirectionqfitsBoardofDirectors.TheBoardhasresponsibilityforestablishingbroadcorpora'tepoliciesandfortheoverallperfonnanceofLILCOratherthantheday-to-daymanagementofitsoperations.LILCO'sBy-lawsprovidethattheBoard,consistofnotlessthansevennormorethanfifteendirectors.Thenumberofdirectors,asmaybefixedfromtimetotimebytheBoard,iscurrentlysetattwelve.TheBoardofDirectors,whichgenerallymeetseveryothermonthandconductsspecialmeetingsasrequired,metatotalofninetimesduring1996.Inaddition,thevariousstandingcommitteesoftheBoard,whicharedescribedingreaterdetailbelow,metatotaloffifteentimesin1996.iAttheBoardmeetings,thedirectorsgenerallydiscusssignificant,developmentsaffectingLILCOandtakeactiononvariousmattersincludingthedeclarationofdividends,thereviewandapprovalofLILCO'scorporategoals,businessplans,earningsplan,expenseandcapitalbudgetsandotherfinancialandsecuritiesrelatedmatters.TheBoardalsoapprovestheannualreporttoshareholders,theannualreportonForm10-Kandtheproxystatement.InadditiontoattendanceatBoardandcommitteemeetings,member'softheBoardarekeptinformedofLILCO'sbusinessbyvariousreportsanddocumentssenttothemeachmonth,aswellasbyreportspresentedatmeetingsoftheBoardanditscommitteesbyofficersandemployeesofLILCOandotherindividuals,ifrequired.Directorsalsoperformtheirresponsibilitiesthroughouttheyearbynumerouspersonalmeetingsandothercommunications,includingfrequenttelephoneconversationswiththeChairmanandotherDirectorsregardingallmattersofimportancetoLILCO.CompensationPaidtoLILCODirectorsThe1996annualretainerfeepaidtoeachDirec'torwas$12,500incashand$12,500appliedtoadeferr'edstockunitaccount,exceptforDr.CatacosinosandMr.Flynnwho,asOfficersofLILCO,donotreceivecompensationforservingasDirectors.ThefeepaidtoeachDirectorwhoisnotalsoanOfficerofLILCOforattendingeachmeetingoftheBoardofDirectorsorofoneofitscommitteeswas$500.UnderthetermsoftheDirectors'tockUnitRetainerPlan(the"RetainerPlan"),eachnon-employeedirectorofLILCOisrequiredtoapplyatleast50/oofhisorherannualretainertothepurchaseofLILCOCommonStockunits("StockUnits").AllocationofStockUnitsundertheRetainerPlanaremadeautomaticallyonthedateduringeachfiscalquarteronwhichthequarterlyinstallmentoftheannualretainerispaid.UndertheRetainerPlan,thevalueoftheunitswhichwillbecreditedtoeachnon-employeeDirector'saccountonaquarterlybasiswillbedeterminedbydividingtheaggregateamountofcashcreditedtosuchaccountbytheclosingpricepershareofLILCOCommonStock,asreportedonaNewYoqkStockExchangelistingofcompositetransactions,onthefirsttradingdayofthecalendarmonthinwhichtheParticipant'sretainerJ-5 ispaid.TheamountsaccumulatedpursuanttotheRetainerPlanwillbehelduntilsuchtimeas(i)aparticipantceasestoserveasaDirectororconsultingDirector(ii)aparticipant'sdeath;or(iii)a"ChangeinControl"(asdefinedintheRetainerPlan).IftheDirectorsoelects,theaggregatevalueoftheStockUnitsaccumulatedpursuanttotheRetainerPlanmaybereceivedincertificatedsharesofLILCOCommonStockatthetimeofdistribution.TheDirectormayelecttoreceiveadistributionofRetainerPlanbenefitsinalumpsumorintenannualinstallments.AnysuchsharesshallbepurchasedbyLILCOontheopenmarketorshallbetakenfromsharesofLILCOCommon,StockpreviouslyacquiredbyLILCOandheldinitstreasury.Priortodistribution,aDirectorshallhavenovotingorotherrightsofashareholderwithrespecttosuchStockUnits.However,eachDirector'saccountwillbecreditedwithanamountequaltotheamountofanydividendspaidonsharesofLILCOCommonStockproportionatetothenumberofStockUnitsaccumulatedpursuanttotheRetainerPlanpriortosuchdividendpaymentdate.AmountssocreditedshallbeappliedtowardthepurchaseofanadditionalnumberofStockUnits.ThetransactionscontemplatedwithBrooklynUnionand/orLIPAwillresultinaChangeinControlforpurposesoftheRetainerPlan.LILCOhasenteredintoaconsultingagreementwithEbenW.Pyne,aformerDirectorofLILCO,naminghimConsultingDirector.ThisagreementprovidesthattheConsultingDirectorwilladviseandcounseltheBoardandanyofitscommitteesonvariousmattersand'willreceiveanannualretainerof$25,000(halfofwhichWascreditedtoadeferredstockunitaccountpursuanttotheRetainerPlanasdiscussedabove)plusanadditional$500foreachBoard'orcommitteemeetingattended.AConsultingDirectordoesnothavetherighttovoteatmeetingsoftheBoardoratmeetingsofcommitteesoftheBoard.Directorsmayelecttodeferthereceiptofanyportionoftheircompensationunderthe'eferredCompensationPlanforDirectors.Amountsdeferredmaybeallocatedtoadeferredcompensationaccount.EachparticipatingDirector'saccountaccruesinterest,compoundedquarterly,attheprimerateplusiA%.TheDeferredCompensationPlanforDirectorsisunfundedandanyaccountsundertheplanwillbegeneralobligationsofLILCO.DistributionsfromadeferredcompensationaccountcommenceuponterminationofmembershipontheBoardofDirectors,deathordisability,oratadatepreviouslydesignatedbytheparticipatingDirector.Distributionsfromthedeferredcompensationaccountmaybemadebylump-sumpaymentorannuallyovereitherafiveorten-yearperiod.Currently,noneoftheDirectorsareparticipatingintheDeferredCompensationPlanfor"Directors.IL'ILCOhasaRetirementPlanforDirectors(the"RetirementPlan"),providingbenefitstoDirectorswhoarenotor'hohavenotbeenOfficersofLILCO.Directorswhohaveservedinthatcapacityformorethanfiveyearsqualifyasparticipantsundertheplan.Theplanprovidesforamonthlybenefitequaltoone-twelfthofthehighestannualretainerpaidtoeachparticipant.Afullbenefitisavailableforparticipant'swhoservefortenyearswithareductionofone-sixtiethforeachmonthofservicelessthantenyears.Undertheplan,paymentofbenefitsistobeginwhentheDirectorceasestoserveasaDirectororConsultingDirectororreachesage65,whicheverislater.Theplanalso,providesthatintheeventofa"changeincontrol".(asdefinedintheRetirementPlan),includingbyvirtueofanacquisitionofLILCO'sassetsorstock,thevalueofvestedbenefitscouldbepayableimmediately.InadditiontoDr.Bugliarello,whowouldbeentitledtobepaidareducedbenefit,Messrs.Paterson,TalmageandPynewouldbeentitledtobepaidfullbenefitsweretheytoceasetoserveasaConsultingDirectororDirectoratthistime.Benefitsareprovidedonastraight-lifeannuitybasisexceptthatiftheDirectorismarriedatthetimebenefitsbegin,ajointand50%survivorbenefitmaybepaidonanactuariallyequivalentbasis.ThebenefitsareunfundedandaregeneralobligationsofLILCO.ThetransactionscontemplatedwithBrooklynUnion.and/orLIPAwillresultina,ChangeofControlforpurposesoftheRetirementPlan.LILCOenteredintoanagreementin1987withMr.Sideris,whilehewasanOfficerofLILCO,whichprovidesretirementbenefitssupplementingthebenefitstowhichheisentitledunderLILCO'sRetirementIncomePlanandSupplemental'DeathandRetirementBenefitsPlan,bothdiscussedbelow.LILCOhasestablishedatrust,whichiscurrentlymakingpaymentoftheretireinentbenefits.Notwithstandingthecreationofthetrust,LILCOcontinuestobeprimarilyliable.J-6 PursuanttotheNYBCLandtheLILCOBy-laws,LILCOhasenteredintoagreementswithitsDirectorsandOfficersprovidingfor'ndemnific'ationandadvancementofexpensesin'efendingcertainactionsorproceedingsinadvanceoftheirfinaldispositionsubjecttorefundiftheyarefoundnottobeentitledtoindemnification.LILCOhasestablishedatrust,theLongIsland,LightingCompanyOfficers'ndDirectors'rotectiveTrust,tofundLILCO'sobligations,undertheseagreements.fCommitteesoftheBoardofDirectorsTheLILCOBoardhasestablishedstandingcommitteestoassistitinperformingitsduties.Theprincipalresponsibilitiesofeachcommitteearedescribedbelow.EachcommitteereportstotheBoardallactiontakeneitherbywrittenreportoratasubsequentBoardmeeting.TheDirectorbiographyportionofthisJointProxyStatement/Prospectusidentifiesthemembersofthevariouscommittees.TheExecutiveComniittee,whichiscomposedoffivemembers,hastheauthorityduringtheintervalsbetweenregularBoardmeetingstoexerciseallthepowersoftheBoard,exceptforcertainpowersreservedexclusivelytotheBoard,whichincludesthepowertosubmitmatterstoshareholdersforapproval.TheExecutiveCommitteemetsix(6)timesduring1996.TheAuditCommiItee,whichmetthree(3)'timesduring1996,iscomposedoffouroutsideDirectorsandis'esponsibleforthesubstantivereviewofthescopeandresultsoftheindependentauditors'uditofLILCO'sfinancialstatements,theinternalauditactivityo(LILCOandotherpertinentauditingandinternalcontrolmatters.TheAuditCommitteealsorecommendstotheBoardofDirectorstheappointmentofoutsideauditors.TheConipensaiionandManagementAppraisalCommittee,whichmetthree(3)timesduring1996,iscomposedoffouroutsideDirectorsandisauthorizedtoreviewandrecommendtotheBoard"'ofDirectorscompensationlevelsofLILCO'sDirectorsandOfficers.Inaddition,thisCommitteereviewstheprocedurestinvolvedinestablishingmanagementcompensationandadministersLILCO'sAnnualStockIncentiveCompensationPlanandLong-TermStockIncentivePlanforofficers.TheNominatingCommitteeconsistsoffivemembersanddeterminescriteriaforqualificationandselectionofDirectorsandprovidestheBoardofDirectorswithrecommendationsrelatingtotheDirectorselectionprocess.ItevaluatespossiblecandidatesfortheBoardof'Directorsandassistsinattractingqualifiedcandidates.TheNominatingCommitteemetone(1)timeduring1996.ShareholderswishingtorecommendcandidatesfornominationtotheBoardofDirectorsshouldsubmittotheCorporateSecretaryofLILCOthename,astatementofqualificationsandthewrittenconsentofthecandidate.RecommendationsmaybesubmittedatanytimeandwillbebroughttotheattentionoftheNominatingCommittee.ThePlanningandEnviroiunentConunitree,whichmettwo(2)timesduring1996,consistedoffourmembers,andreviewsLILCO'sgeneralandenvironmentalobjectives,strategiesandplans,considersandrecommendsvariousoptionsandopportunitiesavailabletoLILCOforitslong-termgrowthanddevelopmentandmonitorsitsprogresstowardtheaccomplishmentofitsgoals.
REPORTOFTHECOMPENSATIONANDMANAGEMENTAPPRAISALCOMMITTEEONEXECUTIVECOMPENSATIONThedisclosurecontaitiedinthissectionoftheproxystatementshallnotbedeemedincorporatedbyreferenceintoanypriorfilingbyLILCOpursuanttotheSecuritiesActof1933ortheSecuritiesExchangeActof1934thatincorporatefuturefilingsorportionsthereof(includingthisprox'ystatementoranypartthereof).TheCompensationandManagementAppraisalCommittee(the,"Committee"),whichestablishestheproceduresbywhichmanagementcompensationisdetermined,reviewsandrecommendsto'the,BoardofDirectorsthecompensationlevelsofLILCO'sOfficersa'ndadministerstheAnnualStockIncentiveCompensationPlan(the"AnnualStockIncentivePlan")andtheOfficers'ong-TermIncentive'Plandiscussedbelow.TheCommitteeismadeupentirelyofoutsideDirectors.ItsmembersareGeorgeBugiiaiello,A.JamesBarnes,RichardL.SchmalenseeandJohnH.Talmage.During1996,theCommitteeusedtwooutsideconsultants,theHayGroup("Hay"),toreviewthecompensationlevelsofLILCO'sofficers,includingthenamedexecutiveofficers,andWilliamM.Mercer,Inc.("Mercer"),toprovideadvicewithrespecttoincentivecompensationarrangements.LILCO'sHumanResourcesofficealsosuppliedindustrycompensationcomparisons.ExecutiveCompensationPhilosophyItistheBoard'sphilosophytouseincentivesandothervariableperformance-basedpayprogramstolinkexecutivepaywithenhancementstoLILCOperformanceandcustomerserviceandtoensuretheattractionandretentionofkeyexecutives.To'accomplishtheseobjectives,overthepasttwoyears,theBoardhaschangedtheexecutivecompensationprogramfromaprogramthatacknowledgedperformancesolelythroughtheadministrationofbasepaytoaprogramthatincludesboththeAnnualStockIricentivePlanandtheLong-TermIncentivePlan.Thisperformance-basedcompensationphilosophyplacesasignificantemphasison'heachievementofstrategicgoalsrelatedtofinancialandcustomerserviceperformance.AsaresultoftheadoptionoftheAnnualStockIncentivePlan,officerbasesalarieshavebeenheldattheirApril1995level.However,evenaftertheadoptionoftheAnnualStockIncentivePlan,LILCO'sofficertotalcompensationopportunitiesremainsbelowmediancompetitive'levelsamongothercomparableelectricutilities.ItistheintentionoftheCommitteetoreviewwiththe.BoardthiscompetitivecompensationshortfallonaregularbasistoensurethatLILCOmaintainsitsabilitytoretaintalentedandcapableexecutives.DeterminationofBaseSalaryLevelsIIITheCommitteeannuallyconsidersadjustmentstobasesalaryrangesusingtheexternalcomparisonstootherutilityandnon-utilitycompanies.Specifically,LILCOstudiestheaveragecompensationlevelsofcomparableexecutivesoffourdatabasesprovidedbyHayforgeneralindustry,metropolitanNewYorkcompanies,nationalutilitiesand9regionalutilitycompanies(the"HayGroupUtilities").TwooftheHayGroupUtilitiesarealsoincludedintheStandard&Poor'sElectricUtilityIndexshownintheperformancegraphonpageJ-11.InadditiontocompensationlevelsamongtheHaydatabases,theCommitteealsoreviewstheresultsoftheEdisonElectricInstitute'sAnnualCompensationSurveyof118utilities(the"EEIUtilities")aswellasthecompensationpaidtotheofficersofotherNewYorkutilities.Individualbasesalaryincreaseswithinthoserangesarethensubjectivelydeterminedbasedonseveralfactors.Thesefactorsincludethecompetitivenessoftheexecutive'scurrentbasesalaryandpotentialincentivecompensation,theexecutive'sindividualaccomplishmentsduringtheyearandtheexecutive'slengthoftimeinhisorherposition.However,becausebasesalarieshavenotbeenincreasedsinceApril1995,the1996basesalariesearnedbythenamedexecutiveofficersintheSummaryCompensationTablefellto8percentbelowcomparablebasesalariesamongtheHayGroupUtilities.J-8 TheAnnualStockIncentiveCompensationPlan~*'nnualincentivecompensationisearnedunderLILCO'sAnnualStockIncentivePlan.AwardsearnedunderthePlan,lessapplicabletaxwithholding>arepaidin.CommonStockfollowingthecloseofagivenplanyear;BymakingtheawardspayableinLILCOCommonStock,officers'erformanceismorecloselyalignedwithshareholderinterest.Officersreceivedpaymentforthefirsttimein1996for,theperformanceachievedduringcalendaryear1995.I'heAnnualStockIncentivePlanisbasedontheachievementoftwoquantifiableobjectives:reducingexpendituresandmaintainingorimprovingcriticalservicegoals.Ifthresholdlevelsarenotachievedforeither"'bjective,noincentiveisreceived.Asthresholdleyels.wereexceeded,theofficerswereeligibletoreceiveawardsfromtheAnnualStockIncentivePlan.t'II'IThetargetincentiveawards-,theamountsthatwillbepaidifgoalperformancelevelsareattainedforallprogramobjectives-were15%forseniorofficers,25%fortheCEOandCOOandl0%forotherofficers,ofthemidpointforthebasesalaryrangeofeachpositionforawardspaidin1996forPlanYear1995.Themidpointforthebasesalaryrangeisdependentupontheexecutive'slevelintheorganization.Seventy-fivepercentofeachindividual'searnedincentiveawardisbasedon.thelevelof,achievementofthetwocorporateobjectives,Thebalanceofeachaward,whichcanrangefromzeroto50percentoftheearnedincentiveaward,isthensubjectivelydeterminedbythe,Committeebased,oneachindividual'scontributiontowardhelpingLILCOachieveitsobjectives.Basedonthelevelofachievementforthebudgetsavingsandservicegoals,andindividualcontributionstoLILCO,awardsundertheAnnualStockIncentivePlanpaidin1996forplanyear1995rangedfrom75to110percentofeachindividual'searnedincentiveaward.The1996totalannualcompensation(basesalaryplusannualstockincentive)earnedbythenamedexecutiveofficersintheSummaryCompensationtablewas9percentbelowthetotalannualcompensationlevelsofthecomparableexecutivesintheHayGroupUtilities.ITheOfficers'ong-TermIncentivePlanInDecember1995,LILCO'sBoardofDirectorsadopted,andatthe1996AnnualMeetingtheshareholdersapproved,theLong-TermIncentivePlan.Priortotheestablishmentofthisplan,LILCOwasoneofthefewutilitiesinitspeergroupwithoutalong-termincentivecompensationplan.Consequently,itstotaldirect"1rcompensation(basesalaryplusannualandlong-termincentives)levelsfell28percentbelowthetotaldirectcompensationlevelsofthecomparisongroupin1995.ThepurposeoftheLong-TermIncentivePlanistomotivatetheOfficerstomeetorexceedLILCO'sbusinessgoals,withaparticularfocusonthelong-termeffectsoftheiractions,andtoprovideincentivesfor,continuedservicetoLILCO.AwardsmadeundertheLong-TermIncentivePlanwillbepaidonlyupontheattainmentoffinancialperformancegoalsorgoalssetbytheCommittee.Thesegoalsincludefreezingrates,improvingearningsandreducingO&Mexpenditures.Ingeneralthegoalsaretobeattainedovertheperiodofthreecalendaryears,withanewcyclebeginningeverytwoyears(the"PerformancePeriod").ThefirstPerformancePeriod(1996-1997)willbetwoyears.Awardswillbepaidfortheattainmentofspecifiedthreshold,targetandmaximumresultsoverthePerformancePeriodandareaspecifiedpercentageperyearofthemidpointoftheindividualparticipant'ssalaryrange.Awardswillbepaidintwoinstallments,each'ofwhichiscontemplatedtobemadeinsharesofCompanyStock.FiftypercentoftheawardwillbedistributedinthenextcalendaryearaftertheendofthePerformancePeriodandtheremaining50%willbesubjecttoamandatoryone-yeardeferralperiod.Generally,anindividualmustbeemployedbyLILCOonthedateeachinstallmentoftheawardispaidtobeeligibletoreceivetheaward.Usingthetargetawardsforcomparison,the1996totaldirectcompensationachievablebythenamedexecutiveofficersintheSummaryCompensationtablefell14percentbelowthetotaldirectcompensationlevelsofthecomparableexecutivesintheHayGroupUtilities.J-9 CEOCompensationThecompensationofDr.Catacosinosconsistsofbasesalaryandannualandlong-termincentives.For1996,theCommitteedidnotrecommendanincreaseinDr.Catacosintis'asesalary.ThistreatmentisconsistentwiththeBoard'sapproachtofreezingthebasesalarylevelsforallofficersandreflectstheBoard'sphilosophythatanincreasedpercentageofthetotalcompensationoftheCEOshouldbederivedfromperformance-basedcompensationratherthanbasepay.InmakingitsdeterminationwithrespecttoDr.Catacosinos'nnualStockIncentivePlanawardforplanyear1995,theCommitteeconsidered,amongotherthings,thelevelofachievementofthebudgetsavingsandservicegoalsinaccordancewiththeAnnualStockIncentivePlan,LILCO'soperatingresults,theefficiencyandhighlevelofreliabilityofLILCO'selectricsystem,andtheeffectivenessofthestrategiesandinitiativesbeingusedtoaddresscompetitivefactorsimpactingtheelectricandgasindustries.Specifically,thecontinuationofLILCO'saggressiveprogramtocontainoperatingandmaintenanceexpensesaswellascapitalexpensesresultedinareductionintheseexpensesof$159million.ThisreductionsignificantlyenhancedLILCO'scashflow,enablingittoredeemallbondsoutstandingunderitsfirstmortgage'withcashonhand.Basedontheseachievements,theCommitteeapprovedanincentiveawardnetoftheappropriateincomeandemploymenttaxesforDr.Catacosinosof5,407sharesofLILCOCommonStock.MarketcomparisonsshowedthatDr.Catacosinos'otalannualcompensation(basesalaryandannualincentive)for1996was4percentbelowthetotalannualcompensationand11percentbelowthetotaldirectcompensation(basesalaryandannualandlong-termincentives)ofCEO'sinMercer'sdatabases.However,byestablishingdirectlinksbetweenpayandperformance,theCommitteeisconfidentthatLILCO'scompensationprogramsproperlyalignmanagement'sinterestswiththelong-terminterestsofratepayersandshareholders.CertainTaxMattersGenerally,Section162(m)oftheInternalRevenueCodeof1986,asamendedlimitstaxdeductionsforexecutivecompensationto$1million.Section162(m)wasnotapplicablein1996tothecompensationoftheexecutivesnamedintheSummaryCompensationTable.1GeorgeBugliarello-ChairmanJohnH;TalmageA.JamesBarnesRichardL.Schmalensee MEETINGS,VOTINGANDPROXIES/ThisJointProxyStatement/Prospectusisfurnishedto(i)theholdersofBrooklynUnionCommonStockinconnectionwiththe.solicitationofproxiesbytheBrooklynUnionBoardfrom,theholders'ofBrooklyn,UnionCommonStockforuseatlireBrooklynUnionMeeting,and(ii)theholdersofLILCOCommonStockandLILCOPreferredStock.inconnectionwiththesolicitationofproxiesbytheLILCOBoardfromtheholdersof,LILCOCommonStockforuseattheLILCOMeeting.LILCOandBrooklynUnionanticipatethatmailingofproxymaterialstotheirrespectiveshareholdersentitledtonoticeofandtovoteattheirrespectivemeetingswillcommenceonoraboutJune30,1997.*tTheBrooklynUnionMeeting'eneral.ThisJointProxyStatement/ProspectusisfurnishedtoholdersofBrooklynUnionCommonStockinconnectionwiththesolicitationofproxiesbytheBrooklynUnionBoardfor'useattheBrooklynUnionMeetingtoconsiderandvoteupontheadoptionoftheBrooklynUnion/LILCOAgreement,theKeySpanShareExchange(asdescribed'inAnnexJhereto)andtotransactsuchotherbusinessasmayproperlycomebeforetheBrooklynUnionMeeting.EachcopyofthisJointProxyStatement/ProspectusmailedtoshareholdersofBrooklynUnionisaccompariiedbyaformofproxyforuseattheBrooklynUnionMeeting.ThisJointProxyStatement/ProspectusisalsofurnishedtoBrooklynUnionshareholdersasaprospectusinconnectionwiththeissuancebytheHoldingCompanyofthesharesofHoldingCompanyCommonStockinconnectionwiththeCombinationandaprospectusinconnectionwiththeissuancebyKeySpanofthesharesofKeySpanCommonStockinconnectionwithKeySpanShareExchange.Date,PlaceandTime;RecordDate.TheBrooklynUnionMeetingwillbeheldatOperaHouse,BrooklynAcademyofMusic,30LafayetteAvenue,Brooklyn,NewYork11217,onThursday,A'ugust7,1997,at3:00p.m.localtime.TheBrooklynUnionBoardhasfiXedthe'closeofbusinessonJune26,1997astheRecordDateforthedeterminationoftheholdersofBrooklynUnionCommonStockentitledtoreceivenoticeofandtovoteattheBrooklynUnionMeeting.VotingRights.AtthecloseofbusinessonJune23,199750,364,212sharesofBrooklynUnionCommonStockwereoutstanding.EachshareofBrooklynUnionCommonStockoutstandingontheRecordDateisentitledtoonevoteuponeachmatterproperlysubmittedattheBrooklynUnionMeeting.Theaffirmativevoteofatleasttwo-thirdsoftheoutstandingsharesofBrooklynUnionCommonStockisrequiredtoadopttheBrooklynUnion/LILCOAgreementandtoadopttheKeySpanExchangeAgreementattheBrooklynUnionMeeting.ThepresenceinpersonorbyproxyattheBrooklynUnionMeetingoftheholdersofatleastamajorityoftheoutstandingsharesofBrooklynUnionCommonStockisnecessarytoconstituteaquorumforthetransactionofbusiness.Abstentionswillbecountedaspresentforpurposesofdeterminingwhetheraquorumispresent.BecausetheadoptionoftheBrooklynUnion/LILCOAgreementandtheKeySpanExchangeAgreementrequirestheapprovalofatleasttwo-thirdsoftheoutstandingsharesofBrooklynUnionCommonStock,abstentionsorthefailuretovotewillhavethesameeffectasanegativevote.UndertherulesoftheNewYorkStockExchange,brokerswhoholdsharesinstreetnameforcustomerswillnothavetheauthoritytovoteontheadoptionoftheBrooklynUnion/LILCOAgreementortheKeySpanExchangeAgreementunlesstheyreceivespecificinstructionsfrombeneficialowners.Suchabrokernon-votewillbecountedaspresentforpurposesofaquorumbutwillotherwisehavethesameeffectasavoteagainstadoptionoftheBrooklynUnion/LILCOAgreementortheKeySpanExchangeAgreement.AsofMay1,1997,directorsandexecutiveofficersofBrooklynUnionandtheiraffiliatesownedbeneficiallyanaggregateof120,405sharesofBrooklynUnionCommonStock(includingshareswhichmaybeacquireduponexerciseofemployeestockoptions),orlessthanonepercentofthesharesofBrooklynUnion LILCO,respectively.Atthetimeoffilingthe'~noticeofelectionto"dissentorwithinonemonththereafter,thedissentingshareholdermustsubmitcertificatesrepresentingsuchholder'ssharestoBrooklynUnionorLILCO,asthecasemaybe,ortheirrespectivetransferagentsfornotationthereon,oftheelectiontodissent,afterwhichsuchcertificateswillbereturnedtothesha'reholder.Anysuchshareholderwhofailstosubmithisorhe'rsharesfor"notationwill,atthe'optionofBrooklynUnionorLILCO,asthecasemaybe,exercisedbywrittennoticetotheshareholderwithin45daysfromthedateoffilingofthenotice"ofelectiontodissent,losesuchholder'sappraisalrights,unlessacourt,forgoodcauseshown,otherwisedirects.i1ltWithin15daysaftertheexpirationoftheperiodwithinwhichshareholdersmayfiletheirnoticesofelectiontodissentorwithin15daysaftertheEffectiveTime,whicheverislater(butnotlaterthan90daysaftertheshareholders'oteauthorizingtheadoptionoftheBrooklynUnio~ILCOAgreementor,inthecaseofLILCO,theLIPAAgreement),BrooklynUnionorLILCO,asthecasemaybe,mustmakeawritte'n'offei(which,iftheCombinationorthe.,LIPATransactionhavenotbeen,consummated,maybeconditionedupon.suchconsummation)toeachshareholder!whohasfiledsuchnoticeofelectiontodissenttopayforsuchiiolder'ssharesatasiiecifiedpricewhich'BrooklynUnionorLILCO,asthecasemay,be,considerstobetheirfairvalue.IfBrooklynUnionorLILCO,asthecasemaybe,andthedissentingshareholderareunabletoagreeastosuchvalue,Section623(h),,oftheNYBCLprovidesforjudicial.determinationoffairvalue.Inthe,eventofsuchadisagreement,acourtproceedingshallbecommencedbyBrooklynUnionorLILCO;asthecasemaybe,intheSupremeCourtoftheStateofNewYork,CountyofKingsinthecaseofBrooklynUnionorCountyofNassauinthecase,ofLILCO,orbythedissentingshareholderifBrooklynUnionorLILCO,asthecasemaybe,failstocommencethe,proceedingwithinthetimerequiredbySection623oftheNYBCL.EachofBroqklynUnionandLILCOintendstocommencesuchaproceedingintheeventofsuchadisagreement.,),!IUndertheBrooklynUnion/LILCOAgreement,BrooklynUnionandLILCOmayterminatetheBrooklynUnion/LILCOAgreement,evenaftershareholderapproval,ifforanyreasontheBrooklynUnionBoardandtheLILCOBoarddeterminethatitisinadvisable,toproceedwiththeCombination,includingconsideringthenumberofsharesforwhich;appraisalrights,havebeenexercisedand,thecosttotheHoldingCompanythereof.UnlesstheLIPATransactiongasbeenconsummated,orwillbe,consummatedcontemporaneously,withtheCombination,itisaconditionofeachparty'sobligationtoeffecttheCombinationthatithasreceivedaletterfromitsrespectiveaccountantsthatthetransactionwillqualifyasapoolingofintereststransaction.Thepoolingofinterestsmethodof,accountingrequiresthatat,least,90percent,oftheissuedandoutstandingsharesofBrooklynUnionCommonStockandatleast90percentoftheissuedandoutstandingshares,ofLILCOCommonStockbeexchangedintheCombinationforsharesofHoldingCompanyCommonStock.h1!-,d''.4"lf'4~,'I43 WHOWISHTOEXERCISESTATUTORYAPPRAISALRIGHTSORWHOWISHTOPRESERVETHERIGHTTODOSOBECAUSEFAILURETOSTRICTLYCOMPLYWITHANYOFTHEPROCEDURALREQUIREMENTSOFSECTION623ORSECTION910MAYRESULTINATERMINATIONORWAIVEROFAPPRAISALRIGHTSUNDERSECTION623ANDSECTION910.ThedissentingBrooklynUnionshareholdermustfilewithBrooklynUnionbeforethetakingofthevoteontheadoptionoftheBrooklynUnion/LILCOAgreementawrittenobjectionincludinganoticeofelectiontodissent,suchholder'snameandresidenceaddress,thenumberandclassofshares(BrooklynUnion'CommonStock)astowhichsuchholderdissents(whichnumbermaynotbelessthanallofthesharesastowhichsuchholderhasarighttodissent)andademandforpaymentofthefairvalueofsuchsharesiftheBindingShareExchangesareconsummated.Anysuchwrittenobjectionshouldbeaddressedto:TheBrooklynUnionGasCompany,OneMetroTechCenter,Brooklyn,NewYork11201-3851,Attention'.Secretary."ThedissentingLILCOshareholdermustfilewithLILCO,beforethetakingofthevoteontheadoptionoftheBrooklynUnion/LILCOAgreementortheLIPAAgreement,awrittenobjectiontoeitherorbothagreementsincludinganoticeofelectiontodissent,suchholder'snameandresidenceaddress,thenumberandclassofshares(CommonorPreferredStock)astowhichsuchholderdissents(whichnumbermaynotbelessthanallofthesharesastowhich'suchholderhasarighttodissent)andademandforpaymentofthefairvalueofsuchsharesiftheCombinationorLIPATransactionasthecasemaybeisconsummated.Anysuchwrittenobjectionshouldbeaddressedto:LongIslandLightingCompany,175EastOldCountryRoad,Hicksville,NewYork11801,Attention:Corpoi'ateSecretary.ForpurposesofperfectingappraisalrightspursuanttoSection623,thewritten"objectionofaholderofsharesofBrooklynUnionorLILCOwhichisaddressedasprovidedaboveshallbedeemedfiledwithBrooklynUnionorLILCO,asthecasemaybe,uponreceiptofsuchobjectionbyBrooklynUnionorLILCO,asthecasemaybe.NeithervotingagainstnorfailuretovoteforthekrooklynUnion/LILCOAgreement,and,inthecaseofLILCOshareholders,theLIPAAgreement,willconstitutethewrittenobjectionrequiredtobefiledbyanobjectingshareholder.FailuretovoteagainsttheBrooklynUnion/LILCOAgreement,and,inthecaseofLILCOshareholders,theLIPAAgreement,however,willnotconstituteawaiverofrightsunderSectioris623and910,provided,thatawrittenobjectionhasbeenproperlyfiled.AshareholdervotingtoadopttheBrooklynUnion/LILCOAgreement,and,inthecaseofLILCOshareholders,theLIPAAgreement,willbedeemedtohavewaivedsuchshareholder'sappraisalrights.ABrooklynUnionorLILCOshareholdermaynotdissentastolessthanallthesharesofBrooklynUnionorLILCOstock,asthecasemaybe,entitledtovoteandheldofrecordthatsuchholderbeneficially,owns.Anomineeorfiduciarymaynotdissentonbehalfofanybeneficialownerastolessthanallthesharesof.BrooklynUnionorLILCOstockofsuchbeneficialowner,astowhichsuchnomineeorfiduciaryhasarighttodissent,heldofrecordby,suchnomineeorfiduciary.Furthermore,ifthesharesofBrooklynUnionorLILCOstockareownedofrecordinafiduciarycapacity,suchasbyatrustee,guardianorcustodian,thedemandmustbemadeinthatcapacity,andjfthesharesofBrooklynUnionorLILCOstockareownedofrecordbymorethanoneperson,asinajointtenancyortenancyincommon,thedemandmustbemadebyorforallownersofrecord.Anauthorizedagent,includingoneoftwoormorejointowners,mayexecutethedemandforappraisalforaholderofrecord;however,suchagentmustidentifytherecordownerorownersandexpresslystateinsuchdemandthattheagentisactingasagentfortherecordownerorownersofsuchsharesofBrooklynUnionorLILCOstock.Arecordholder,suchasabrokeroranagent,whoholdssharesofBrooklynUnionorLILCOstockasanomineeforbeneficialowners,someofwhomdesiretodemandappraisal,mustexercise-appraisalrightsonbehalfofsuchbeneficialownerswhodesiretodemandappraisalwithrespecttothesharesofBrooklynUnionorLILCOstockentitledtovoteandheldforsuchbeneficialowners.WithintendaysafterthevoteofBrooklynUnionandLILCOshareholdersauthorizingtheadoptionoftheBrooklynUnion/LILCOAgreement(andwith'respecttoLILCOonly,theLIPAAgreement),BrooklynUnionandLILCOmustgivewrittennoticeofsuchauthorizationtoeachdissentingshareholderofBrooklynUnionand42 WithrespecttotheseriesofLILCOPreferredStockcurrentlylistedontheNewYork'StockExchange,forsolongasLILCOandsuchpreferredstockcontinuetomeettherequirementsoftheNewYorkStockExchange,suchseriesofpreferredstockwillcontinuetobelistedonthe'NewYorkStockExchangeaftertheEffectiveTimeintheeventthattheCombinationisconsummatedbuttheLIPATransactionisnotconsummated.,I~'ederalSecuritiesLawConsequencesAllsharesofHoldingCompanyCommonStockreceivedbyshareholdersofBiooklynUnionandLILCOintheCombinationwillbefreelytransferable,exceptthatsharesofHoldingCompanyCommonStockreceivedbypersonswhoaredeemedtobe"affiliates"(assuchtermisdefinedunder,theSecuritiesActof1933,asamended(the"SecuritiesAct"))ofBrooklynUnionorLILCOpriortotheCombinationmayberesoldbythemonlyintransactionspermittedbytheresaleprovisionsofRule145undertheSecuritiesAct(orRule144undertheSecuritiesAct,inthecaseofsuchpersonswhobecomeaffiliatesoftheHoldingCompany)orasotherwisepermittedundertheSecuritiesAct.PersonswhomaybedeemedtobeaffiliatesofBrooklynUnion,-LILCOortheHoldingCompanygenerallyincludeindividualsorentitiesthatcontrol,arecontrolledby,orareundercommoncontrolwith,suchpartyandmayincludecertainofficersanddirectorsofsuchpartyaswellasprincipalshareholdersofsuchparty.TheBrooklynUnion/LILCOAgreementalsorequireseachofBrooklynUnionandLILCOtouseallreasonableeffortstocauseeachofitsaffiliatestoexecuteanddelivertothe,HoldingCompanyawrittenagreementtotheeffectthatsuchaffiliatewillnotofferorsellorotherwisedisposeof(i)anysharesofBrooklynUnion,LILCOortheHoldingCompanyduringtheperiodbeginning30dayspriortotheEffectiveTimeandcontinuinguntilsuchtimeasresultscoveringatleast30daysofpost-EffectiveTimeoperationsoftheHoldingCompanyhavebeenpublishedor(ii)anyofthesharesofHoldingCompanyCommonStockissuedtosuchaffiliateinorpursuanttotheCombinationinviolationoftheSecuritiesActortherulesandregulationspromulgatedbytheSecuritiesandExchangeCommission(the"SEC")thereunder.ThisJointProxyStatement/ProspectusdoesnotcoverresalesofHoldingCompanyCommonStockreceivedbyanypersonwhomaybedeemedtobeanaffiliateofBrooklynUnion,LILCOortheHoldingCompany.AppraisalRightsSection'910oftheNewYorkBusinessCorporationLaw("NYBCL")setsforththerightsofshareholdersofBrooklynUnionorLILCOwhoobjecttotheadoptionoftheBrooklynUnion/LILCOAgreementor,inthecaseofshareholdersofLILCO,theLIPAAgreement.AnyrecordholderofBrooklynUnionCommonStockoiLILCOCommonStockasoftherecorddatewhodoesnotvoteinfavoroftheadoptionoftheBrooklynUnion/LILCOAgreement,orwhodulyrevokeshisorhervoteinfavoroftheadoptionoftheBrooklynUnion/LILCOAgreement,may,iftheCombinationisconsummated,obtainpayment,incash,forthefairmarketvalueofsuchholder'ssharesbystrictlycomplyingwiththerequirementsofSection623oftheNYBCL.Similarly,anyholderofLILCOCommonStock(unlesstheCombinationoccursbeforetheconsttmmationoftheLIPATransaction)orLILCOPreferredStockwhodoesnotvoteinfavoroftheadoptionoftheLIPAAgreement,ifentitledtovotethereon,orwhodulyrevokeshisorhervoteinfavoroftheadoptionoftheLIPA"Agreement,may,iftheLIPATransactionisconsummated,obtainpayment,in'cash,forthefairmarketvalue'ofsuchholder'ssharesbystrictlyc'omplyingwiththerequirementsofSection623oftheNYBCL.'hefollowingsummaryoftheapplicableprovisionsofSections623and910isnotintendedtobeacompletestatementofsuchprovisionsandisqualifiedinitsentiretybyreferencetothefulltextofSections623and910,copiesofwhichareattachedtothisJointProxyStatement/ProspectusasAnnexI.ApersonhavingabeneficialinterestinsharesofBrooklynUnionCommonStockorLILCOCommonStockorLILCOPreferredStockthatareheldofrecordinthenameofanotherperson,suchasabrokerornominee,mustactpromptlytocausetherecordholdertofollowthestepssummarizedbelowproperlyandinatimelymannertoperfectwhateverappraisalrightsthebeneficialownermayhave.fTHISSUMMARY.ANDANNEX,.ISHOULD.BEREVIEWEDCAREFULLYBYHOLDERSOFBROOKLYNUNIONCOMMONSTOCK,LILCOCOMMONSTOCKANDLILCOPREFERREDSTOCK41 ThefederalincometaxconsequencestotheholdersofBrooklynUnionCommonStockwillbethesameasdescribedaboveforaMergerthatisprecededbytheLIPATransaction.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersofBrooklynUnionCommonStock."TheprecedingdoesnotpurporttoaddressallpotentialfederalincometaxconsequencesoftheLIPATransactionandtheCombination.Inaddition,theforegoingdiscussiondoesnotaddressfederalincometaxconsequenceswhichmayvarywith,orarecontingenton,ashareholder'sindividualcircumstances,Moreover,exceptforthediscussionoftheTransferTaxesabove,thisdiscussiondoesnotaddressanynon-incometaxoranyforeign,stateorlocaltaxconsequencesoftheCombinationortheLIPATransaction.This'discussiondoesnotaddressthetaxconsequencesofanytransactionotherthantheLIPATransactionandtheCombination.Accordingly,eachshareholderisurgedtoconsultwith=suchshareholder'staxadvisortodeterminetheparticularfederal,state,localorforeignincomeorothertaxconsequencestosuchshareholderoftheLIPATransactionandfheCombination.AccountingTreatment,General.UnlesstheLIPATransactionhasbeenconsummated,orwillbeconsummatedcontemporaneouslywith,theCombination,itisaconditiontotheconsummationoftheCombinationthatBrooklynUnionreceivesaletterfromArthurAndersonLLPandLILCOreceivesaletterfromErnst8r,YoungLLP,eachdatedtheEffectiveTimeandeachofwhichindicatesthattheyconcurwithmanagement'sconclusionthatnoconditionsexistthatwouldprecludethetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement,ifconsummated,fromqualifyingastransactionstobeaccountedforinaccordancewiththepoolingofinterestsmethodofaccountingundergenerallyaccepte'd-accountingprinciples.Underthisaccountingmethod,theassetsandliabilitiesofBrooklynUnionandLILCOwillbecarriedforwardtotheconsolidatedfinancialstatementsoftheHoldingCompanyattheirrecordedamounts.ResultsofoperationsoftheHoldingCompanywillincludetheresultsofbothBrooklynUnionandLILCOfortheentirefiscalyearinwhichtheCombinationoccurs.Thereportedbalancesheetamountsandresultsofoperationsoftheseparatecorporationsforpriorperiodswillbecombined,reclassifiedandconformedasappropriate,toreflectthecombinedfinancialpositionandresultsofoperationsfortheHoldingCompany.See"UnauditedProFormaCombinedCondensedFinancialInformation."IftheCombinationandtheLIPATransactionareconsummatedcontemporaneously,oriftheLIPATransactionisconsummatedpriortotheCombination,theCombinationwillbeaccountedforasapurchaseofassetsandanassumptionofliabilitiesinaccordancewithgenerallyacceptedaccountingprinciples.V.UAccounh'ngCousideraliouAbsentLIPATransacriou.IftheLIPATransactionwereterminated,LILCOwouldseekresolutionofitselectricratefilingfortherateyears1997through1999.LILCObelievesthatundersuchcircumstances,thePSCwillissueanelectricrateorderprovidingforamongotherthings,thecontinuingrecoverythroughratesoftheratemoderationcomponent,oneoftheShoreham-relatedregulatoryassets.However,ifsuchelectricrateorderisnotobtained,ordoesnotprovideforthecontinuing-recoveryofsomeorallofthisregulatoryassetthroughrates,LILCOmayberequiredtowrite-offtheamountnotexpectedtobeprovidedforinrates.AtMarch31,1997,thebalanceoftheratemoderationcomponentwasapproximately$409.5million.I)StockExchangeListingoftheHoldingCompanyStockApplicationwillbemadeforthelistingontheNewYorkStockExchangeofthesharesofHoldingCompanyCommonStocktobeissuedpursuanttothetermsoftheBrooklynUnion/LILCOAgreement.ThelistingontheNewYorkStockExchangeofsuchshares,subjecttonoticeofissuance,isaconditionprecedenttotheconsummationoftheCombination.SolongasBrooklynUnionandLILCOcontinuetomeettherequirementsoftheNewYorkStockExchange,BrooklynUnionCommonStockandLILCOCommonStock,asthecasemaybe,willcontinueto'belistedontheNewYorkStockExchangeuntiltheEffectiveTime.SolongasLILCOcontinuestomeettherequirementsofthePacificStockExchange,LILCOCommonStock'willcontinuetobelistedonthePacificStockExchangeuntiltheEffectiveTime.40 CommonStock.Further,iftheLIPATransactionclosesmorethansixmonthsaftertheCombination,thenaportionoftheadditionalsharesofHoldingCompanyCommonStockreceivedmaybetreatedasinterestincome.EachholderofLILCOCommonStockshouldconsultsuchshareholder'sowntaxadvisorastotheseissues.IftheLIPATransactionistreatedasindependentfromtheCombination.LILCO'stransferoftheTransferredAssetstotheTransfereeSubsidiariesintheLIPATransactionwillcauseJ.ILCOtorecognizegain.h.,HoldersofLILCOSeriesAAPreferredStockwhoexchangesuchsharesforHoldingCompanyPreferredStockinconnectionwiththeLIPA,Transactionshouldrecognizegainorloss.TheanlountofgainorlosswillequalthedifferencebetweenthefairmarketvalueofHoldingCompanystockreceivedandtheshareholders'espectivetaxbasisintheirLILCOSeriesAAPreferredStock.HoldersofLILCOPreferredStockthatiscalledforredemption.orthatis,acquiredorotherwisecanceledinexchangeforcashbyLILCOorLIPApursuanttothetermsoftheLIPAAgreementandholdersofLILCOPreferredStockwhodissentandreceivecashalso,willrecognizegainorloss.AholderofLILCOSeriesAAPreferredStockorotherLILCOPreferredStockmightbe*eligibletodeferrecognitionofgainpursuanttotheprovisionsofSection1033oftheCodediscussedabove.SeeMaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-'faxImplicationstoHoldersofLILCOCommonStock.">>1.C.IftireLIPATransactionOccnrsAftertheCombinationandtheLIPATransactionisNotTreatedasanIndependentTransaction.IftheLIPATransactionoccursaftertheCombinationandtheLIPATransactionisnottreatedasindependent,theholdersofLILCOCommonStockmay.betreatedassellingsuchstockdirectlytoLIPA.Inthisevent,thematerialfederalincometaxconsequences,.toholdersofLILCOCommonStockandPreferredStockshouldbe,andtotheholdersofBrooklynUnionCommonStockwillbe,thesameasthosedescribedforsuchholdersiftheLIPATransactionoccursconcurrentlywith,orprecedes,theCombination.,See"-MaterialFederal,IncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination."IV.IftheCombinationOccursAftertheLIPAAgreementisTerminated,IftheCombinationoccursaftertheLIPAAgreementisterminatedorexpires,Section351(a)oftheCodeshouldapplyto,theShareExchange.UnderSection351(a),nogainorJosswillberecognizedforfederalincometaxpurposesbyholdersofLILCOCommonStockwho,exchangetheirLILCOCommonStockforHoldingCompanyCommonStock,exceptwithrespecttocashreceivedinlieuoffractionalshares.TheaggregatetaxbasisofHoldingCompanyCommonStockreceivedbyaLILCOshareholderasaresult.oftheCombinationwillbethesameastheshareholder'saggregatebasisintheLILCOCommonStocksurrenderedintheexchange(reducedbyanysuchtaxbasisallocabletothefractionalshareforwhichcashisreceived).TheholdingperiodofHoldingCompanyCommonStockreceivedbyaLILCOshareholderwillincludetheholdingperiodfortheLILCOCommonStockexchangedforsuchHolding.CompanyCommonStock.Cashreceived,byaholderofLILCOCommonStock.inlieuofafractionalshareinterestinHoldingCompanyCommonStock,willresultintherecognitionofgainorlossequaltothedifferencebetweentheamountofcashreceivedandthetaxbasisallocabletosuchfractionalshareinterest.IfaholderofLILCOCommonStockhasdifferingbasesorholdingperiodsinitssharesofLILCOCommonStock,itshouldconsultitstaxadvisorpriortotheShareExchangewithregardtoidentifyingthebasesorholdingperiodsoftheparticularsharesofHoldingCompanyCommonStockreceivedintheShareExchange.ThefederalincometaxconsequencestoholdersofLILCOCommonStockwhoexercisedissenters'ightswithrespecttotheCombinationandreceive.cashfortheirLILCOCommonStockwillbethesameasdescribedaboveforLILCOshareholderswhoexercisedissenters'ights,exceptthatdissentingshareholdersshouldnotbeeligibletodeferrecognitionofgainpursuanttotheprovisionsofSection1033oftheCode.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersofLILCOCommonStock."39 independenttransaction;and(C),theLIPATransactionoccursaftertheCombination,andtheLIPATransactionisnottreatedasanindependenttransaction.Thematerialfederalincometaxconsequencesofeachofthesealternativesisdiscussedbelow.'lIngeneral,iftheCombinationoccurswhentheLIPAAgreementhasnotbeenterminatedorconsummated,theSharcExchangeshouldbeataxabledisposition(subjecttothepossibleapplicationofSection1033oftheCode)bytheholdersofLILCOCommonStock.IftheLIPATransactionoccursaftertheCombinationandtheLIPATransactionistreatedasanindependenttransaction,theLIPATransactionshouldbetreatedgenerallyasasaleoftheLILCOCommonStockbytheHoldingCompanytoLIPA.IftheLIPATransactionoccursaftertheCombinationandtheLIPATransactionisnottreatedasanindependenttransaction,theShareExchangeandtheLIPATransactiontogethermaybetreatedgenerallyasasaleoftheLILCOCommonStockbytheholdersofthatstock(subjecttothepossibleapplicationofSection1033oftheCode).Inanyevent,theMerger.generallyshouldbeanontaxableexchangeoftheBrooklynUnionCommonStockforHoldingCompanyCommonStock.Thematerialfederalincometaxconsequencesofthesethreealternativesarediscussedinorefullybelow.(WhethertheLIPATransactionwillbetreatedas,anindependenttransactioniftheCombinationprecedestheLIPATransactionisuncertain.ThecloserintimethattheCombinationandtheLIPATransactionoccur,themorelikelythattheLIPATransactionwillnotbetreatedasanindependenttransaction,Becausethetimebetweenthetwotransactionsandthenatureofanyinterveningeventsareunknown,counselexpressesnoopinionwhethertheLIPATransactionwillbetreatedasanindependenttransaction..A.IftheCombinationOccursandtheLIPAagreementT/tereafterisTetvninated.,TheexchangeofLILCOCommonStockforHoldingCompanyCommonStockhasbeenstructuredtobeataxabledispositionofLILCOCommonStockbytheholdersthereoftoHoldingCompanyinexchangeforHoldingCompanyCommonStock.TheholdersofLILCOCommonStockshouldrecognizegainorlossequaltothedifferencebetween(i)thesumofthefairmarketvalueofHoldingCompanyCommonStockandthecashreceivedbytheshareholdersinlieuoffractionalshareinterestsinHoldingCompanyCommonStockand(ii)theholders'espectivetaxbasisintheirLILCOCommonStock.AshareholdermightbeabletodeferrecognitionofsuchgainpursuanttotheprovisionsofSection1033oftheCodediscussedabove.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersofLILCOCommonStock."HoldersofLILCOCommonStockwhodissentfromparticipatingintheShareExchangeandreceivecashfortheirLILCOCommonStockwillrecognizegainorlossforfederalincometaxpurposes.AdissentingshareholdermightbeabletodeferrecognitionofsuchgainpursuanttotheprovisionsofSection1033oftheCodediscussedaboveif,amongotherthings,theshareholderacquiresreplacementproperty.IftheCombinationoccursandtheLIPAAgreementthereafteristerminated(orexpires),thefederalincometaxconsequencestotheholdersofBrooklynUnionCommonStockshouldbethesameasthosedescribedforaMergerthatoccursconcurrentlywith,orafter,theLIPATransaction.See"-Material,FederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination-TaxImplicationstoHoldersofBrooklynUnionCommonStock.'-'.fR=IftheLIPAtransactionOccursAftertheCombinationandtheLIPATransactionisTreatedasanIndependentTransaction.If,theCombinationistreatedasindependentfromtheLIPATransactioninaccordancewithitsform,thefederalincometaxconsequencesoftheCombinationtotheLILCOcommonshareholdersandtheBrooklynUnionshareholdersgenerallyshouldbethesameasthosedescribedintheprecedingsection.See"-MaterialFederalIncomeTaxConsequences-IftheCombinationOccursBeforetheLIPAAgreementisTerminated-IftheCombinationOccursandtheLIPAAgreementThereafterisTerminated."Underthisalternative,however,theholdersofLILCOCommonStockwillreceiveadditionalsharesofHoldingCompanyCommonStockupon-consummationoftheLIPATransaction.lnthateventandiftheCombinationandtheLIPATransactionoccurindifferenttaxyearsfora-shareholder,thecontingentpayment*,installmentsaleprovisionsoftheCodemayapplytothereceiptofsuchadditionalsharesofHoldingCompany38 theirLILCOSeriesAAPreferredStock.HoldersofLILCOPreferredStockthatiscalledforredemptionorthatisacquiredorotherwisecanceledinexchangeforcashbyLILCOorLIPApursuanttothetermsoftheLIPAAgreementandholdersofLILCOPreferredStockwhodissentandreceivecashalsowillrecognizegainorlos's.AholderofLILCOSeriesAAPreferredStockorotherLILCOPreferredStockmightbeeligibletodeferrecognitionofsuchgainpursuanttotheprovisionsofSection1033oftheCodediscussedaboveunder"-TaxImplicationstoHoldersofLILCOCommonStock"if,amongotherthings,theshareholderacquiresreplacementproperty.~'axImplicationstoHoldersofBrooklynUnionCommonStock.ExceptfordissentingshareholdersandthepossibleapplicationofTransferTaxes(as.hereafterdiscussed),theexchangeofBrooklynUnionCommonStockfoi;HoldingCompanyCommonStockintheMergerwillbetax-free.Accordingly,subjecttothepriorsentence,.nogainorlosswillberecognizedforfederalincometaxpurposesbyholdersofBrooklynUnionCommonStockwhoexchangesuchStockforHoldingCompanyCommonStockintheMerger.ThebasisandholdingperiodfortheHoldingCompanyCommonStockreceivedbyaBrooklynUnionshareholderintheMergerwillbethesameasthebasisandholdingperiodintheBrooklynUnionCommonStockexchangedtherefor.SomeholdersofBrooklynUnionCommonStockmayhavedifferingbasesorholdingperiodsfortheirsharesofBrooklynUnionCommonStock.SuchholdersshouldconsulttheirtaxadvisorspriortotheexchangewithregardtoidentifyingthebasesandholdingperiodsoftheparticularsharesofHoldingCompanyCommonStockreceivedintheexchange.HoldersofBrooklynUnionCommonStockwhoexercisedissenters'ightsintheMergerandreceivecashfortheirBrooklynUnionCommonStockwillrecognizeeithergainorlossforfederalincometaxpurposes.TheamountofsuchgainorlosswillbeequaltothedifferencebetweentheamountofcashreceivedandtheirtaxbasisintheirsharersofBrooklynUnionCommonStock.NewYorkCityimposescertaintaxesonthetransferofaninterestinrealproperty(includingleases)locatedinNewYorkCity("TransferTaxes").TransferTaxesarealsoimposedinconnectionwith,certainchangesofownershipofan"entityowningarealpropertyinterestinNewYorkCity.TheexchangeofBrooklynUnionCommonStockforHoldingCompanyCommonStock.byBrooklynUnionshareholderspursuanttotheBrooklynUnion/LILCOAgreementwillresultintheimpositionofTransfer.Taxes.BrooklynUnion(andnotKeySpan)willpayanyTransferTaxesincurredasaresultofachangeinownershipofBrooklynUnion.Forfederalincometaxpurposes,thepaymentofTransferTaxesbyBrooklynUnionmaybedeemedtobeataxabledividendpaidbyBrooklynUniontocertainBrooklynUnionshareholders.Thiswouldbethe'caseifBrooklynUnionisconsideredtohavesatisfiedwhatisotherwisetheobligationofashareholdertopayTransferTaxesasopposedtoitsownobligationtopaysuchtaxes.AnyincometaxesresultingfromsuchdeemeddividendwillbetheresponsibilityofthoseBrooklynUnionshareholders.Althoughnotfree.from'doubt,aBrooklynUnionshareholdershouldbeentitledtoincreaseitstax-basisinHoldingCompanyCommonStockreceivedintheMergerbytheamount'ofanysu'chdeemeddistribution.II.IfOnlytheLIPATransactionOccursIIftheLIPATransactionoccursbuttheCombinationdoesnotoccur,thematerialfederalincometaxconsequencestoLILCO,HoldingCompanyandtheholdersofLILCOCommonStockandLILCOPreferredStockshouldbethesameastheconsequenceswheretheLIPATransactionoccursdoncurrentlywith,orprecedes,theCombination.See"-MaterialFederalIncomeTaxConsequences-IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombination."IlIIII.IftheCombinationOccurswhentheLIPAAgreementhasnotbeenTerminatedorConsummatedIftheCombinationoccurswhentheLIPAAgreementhasnotbeenterminatedorconsummated,therearethreepossiblealternatives:(A)theCombinationoccursandtheLIPAAgreementthereafteristerminated(orexpires);(B)theLIPATransactionoccursaftertheCombination,andtheLIPATransactionistreatedasan37 HoldingCompanyCommonStockreceivedfromHoldingCompanywillequalthecashpaidthereforand(ii)HoldingCompanyCommonStockreceivedfromL'ILCOwillequalsuchstock'sfairmarketvalueattheeffectivetimeoftheLIPATransaction.KHoldersofLILCOCommonStockmaybeabletodefertheirrecognitionofsuchgain(butnotloss)pursuanttoSection1033oftheCo'de.Section1033generallyprovidesthatifataxpayertransferspropertyunderathreatofcondemnationandreceivesinexchangeproperty'hatis"similarorrelatedinserviceoruse"tothetransferredproperty("replacemen'tproperty"),thenthetaxpayerwillnotrecognizegainonthetransfer.Section1033furtherprovidesthatifthetaxpayerreceivesmoneyorotherproperty,thenthetaxpayermayelecttodeferrecognizinggainbypurchasingreplacementpropertywithintwoyearsafterthecloseofthetaxyearinwhichthetaxpayerfirstrealizesgainfromthetransfer'.LILCO'smanagementbelievesthattheLIPATransactionisoccurringunderthreatofcondemnation.ThenonrecognitionprovisionsofSection1033oftheCodemayapplytotheshareholders'ispositionofLILCOCommonStock.IfSection1033isapplicable,HoldingCompanyCommonStock'mightqualifyasreplacementpropertyforLILCOCommonStock.InthateventholdersofLILCOCommonStockmaynotberequiredtorecognizegainwithrespecttotheirreceipt(ortheiragent'sreceipt)ofHoldingCompanyCommonStockfromLILCO.Inaddition,holdersofLILCOCommonStockthatelecttodosomaynotberequiredtorecognizegainwithrespecttotheiragent'sreceiptofcashfromLIPA,becauseofthereinvestmentofsuchcashinHoldingCompanyCommonStock.IfSection1033applies,thenashareholderwillberequiredtomakeanelectiontoavoidrecognitionofgainwithrespecttothereceiptofcash,andmayberequiredtomakeanelectionwithrespecttothe'receiptofHoldingCompanyCommonStock.IfashareholderavoidsrecognizinggainintheLIPATransactionpursuanttoSection1033,theshareholder'staxbasisinthereplacementproperty(HoldingCompanyCommonStock)generallywillequaltheshareholder'scostbasisforsuchreplacementpropertydecreasedbytheamountofgainnotrecognizedpursuanttoSection1033.Consequently,theshareholder'saggregatetaxbasisinitsHoldingCompanyCommonStockgenerallyshouldbethesameastheshareholder'saggregatetaxbasisinLILCOCommonStock,lesstheamountofcashreceivedinlieuofafractionalshare.ThereisnoprecedentirivolvingtheapplicabilityofSection1033toatransactionsimilartotheLIPATransaction.Accordingly,counselexpressesnoopinionregardingthepotentialapplicationofSection1033toholdersofLILCOCommonStock.-THEPOSSIBLEAPPLICATIONOFSECTION1033TOTHELIPATRANSACTIONISUNCERTAIN.EACHHOLDEROFLILCOCOMMONSTOCKISENCOURAGEDTOCONSULTWITHTHESHAREHOLDE<R'SOWNTAXADVISORTODETERMINE<,AMONGOTHERISSUES,(1)WHETHERSECTION1033APPLIESTOSUCHSHAREHOLDER)(ii)WHATPROPERTYQUALIFIESASREPLACEMENTPROPERTY,(lii)WHETHER,ANDINWHATMANNER,THESHAREHOLDERMUSTMAKE<ANEI.ECTIONTOAVOIDRECOGNIZINGGAIN,AND(iv)THEAMOUNTOFANYREQUIREDADJUSTMENTTOTHESHAREHOLDER'SBASISINREPLACE<ME<NTPROPERTY.HoldersofLILCOCommonStockwhoexercisedissenters'ightswithrespecttotheLIPATransactionandreceivecashfortheirLILCOCommonStockwillrecognizegainorlossforfederalincometaxpurposes.AdissentingshareholdermightbeabletodeferrecognizingsuchgainpursuanttothenonrecognitionprovisionsofSection1033oftheCodeasdiscussedaboveif,amongotherthings,theshareholderacquiresreplacementproperty.TaxImplicationstoHoldersofLILCOPreferredStock.HoldersofLILCOSeriesAAPreferredStockwhoexchangesuchsharesforHoldingCompanypreferredstockinconnectionwiththeLIPATransactionwillrecognizegainorlossforfederalincomefaxpurposes.TheamountofgainorlosswillequalthedifferencebetweenthefairmarketvalueofHoldingCompanystockreceivedandtheshareholders'espectivetaxbasisin36 SituationITaxablegainontransferofTransferredAssetsNottaxable(otherthantaxonpossibledividendincomeequaltoNewYorkCityrealpropertytransfertaxthatmayotherwisebepayablebyashareholder)LIPATransactionoccurswithorpriortoCombinationThefollowingtableisprovidedasaguidetothediscuss'ionofthematerialfederalincometaxconsequencesoftheproposedtransactionsandisqualiftedinitsentiretybythatdiscussion.EffectonLILCOCommon&Preferred~.TransactionShareholderswhoEffectonIIUShareholders~'ffectonDescriptionDoNotDissentIvhoDoNotDissentLILCOTaxable-Possible$1033DeferralIII-ACombinationafterwhich'LIPATransactionterminatedCommon:Sameas'.Preferred:NottaxableIILIPATransactiononlySameasINotapplicableSameasI.SameasI.Nottaxable:NoassettransferIII-CCombinationfollowedbyLIPATransaction:TreatedasindependentCombinationfollowedbyLIPATransaction:NottreatedasindependentSameasI.SameasI.SameasI.SameasI.SameasI.SameasI.IVCombinationoccursNottaxableafterLIPATransactionterminatedSameasI.Nottaxable:NoassettransferI.IftheLIPATransactionOccursConcurrentlyWith,orPrecedes,theCombinationTaxImplicationstoLILCO.LILCO'stransferoftheTransferredAssetstotheHoldingCompanyand!ortheHoldingCompanysubsidiariesthatreceivetheTransferredAssets(the"TransfereeSubsidiaries")inexchangeforHoldingCompanyCommonStockandHoldingCompanyPreferredStockintheLIPATransactionshouldbeataxabletransactionforLILCO.TaxImplicationst'otheHoldingCompany.TheHoldingCompanywillnotrecognizegainorlossuponitsissuanceofHoldingCompanyCommonStockandHoldingCompanyPreferredStocktoLILCOinexchangefor'theTransferredAssets.The,HoldingCompany'saggregatebasisintheTransferredAssetsshouldequalthefairmarketvalueoftheTransferredAssetsatthetimeoftheexchange.Inaddition,theHoldingCompanywillnotrecognizegainorlossuponitsissuanceofHoldingCompanyCommonStock,toholdersofLILCOCommonStock(throughtheiragent)inexchangeforthecashtheyreceived(throughtheiragent)fromLIPAintheLIPAMerger.See"TheLIPATransaction-AgreementandPlanofMerger"foradescriptionoftheLIPATransaction.STaxImplicationstoHoldersofLILCOCommonStock.Althoughnotfreefromdoubt,andsubjecttothepossibleapplicationofSection1033oftheCodeasdiscussedbelow,theLIPATransactionshouldbetreatedasataxabledispositionofLILCOCommonStockbytheholdersinexchangeforcashreceived(throughtheiragent)fromLIPAandHoldingCompanyCommonStockreceivedfromLILCO.TheholdersofLILCOCommonStockshouldrealizegainorlossequaltothedifferencebetween.(i)thesumofthecashandthefairmarketvalueofsuchHoldingCompanyCommonStockreceivedand(ii)theholders'espectivetaxbasisintheirLILCOCommonStock.SubjecttothepossibleapplicationofSection1033oftheCode;-ashareholder'sbasisin(i)35 MaterialFederalIncomeTaxConsequences,*~ThefollowingsetsforththeopinionofWachtell,Lipton,Rosen&,gatzastothematerialfederalincometaxconsequencesoftheMergertoBrooldynUnionanditsshareholders.ThefollowingalsosetsforththeopinionofHunton4WilliamsastothematerialfederalincometaxconsequencesoftheShareExchangeandtheLIPATransactiontoLILCOanditsshareholders.ThefollowingdiscussionisbasedontheCode,theregulationsthereunder,administrativeinterpretationsandcourtdecisions.Futurelegislation,regulations,admintstrativeinterpretationsorcourtdecisionscouldchangethetaxconsequencesdescribedbelow.Thisdiscussiondoesnotaddressallaspectsoffederalincometaxationthatmaybeimportanttoanyspecificshareholderinlightofsuchshareholder'sparticularcircumstances.Nordoesitaddressaspectsthatmaybeimportanttoshareholderssubjecttospecialrules,suchasshareholderswhoarenotcitizensorresidentsoftheUnitedStates,financialinstitutions,tax-exemptorganizations,insurancecompanies,dealersinsecuritiesorshareholderswho,acquiredtheirBrooklynUnionCommonStock,LILCOCommonStockorLILCOPreferredStockpursuanttotheexerciseofoptionsorotherwiseascompensation.Thisdiscussion,assumesthatLILCOandBrooklynUqionshareholdersholdtheirrespectivesharesofstockascapitalassetswithinthemeaningofSection1221oftheCode.Accordingly,gainorlossrecognizedbyshareholdersasdescribedbelowgenerallywillbecapitalgainorlo'ss.Itwillbelong-termgainorlossfoistockheldmorethanoneyearattheeffectivetimeofthetransactionresultinginthegainorloss.IftheKeySpanShareExchangeisconsummatedpriortotheMerger,thenallreferencescontainedinthisdiscussionofMaterialFederalIncomeTaxConsequences(i)toBiooklynUnionCommonStockandtheholdersthereofshallrefertoKeySpanCommonStockandtheholdersthereofand(ii)toBrooklynUnionshallrefertoKeySpan.TaxConsequences-OverviewThematerialfederalincometaxconsequencesoftheLIPATiansactionandtheCombiriationdependinpartonwhethereachtransactionoccurs.andtheorderinwhichthetransactionsoccur.Specifically,thematerialfederalincometaxconsequencesdependonwhether(i)theLIPATransactionandtheCombinationoccurconcurrently(ortheLIPATransactionprecedes'heCoinbination),(ii)onlytheLIPATransactionoccurs,(iii)theCombinationo'ccurswhenthe'LIPAAgreementhasnotbeenterminatedorconsummated,or(iv)theCombinationoccursaftertheLIPAAgreementisterminated.Thematerialfederalincometaxconsequencesofeachofthesepossiblealternativesisdiscussedbelow.34 LILCOandthreeofwhomwillhavebeendesignatedbyacommitteeconsistingoftwocurrent~directorsofBrooklynUnionandtwocurrentdirectorsofLILCO.IntheeventthattheMergerisnotconsummated,theBoardofDirectorsoftheHoldingComp'any,wilfconsist'oftheDirectorsofLILCOservingiminediately'beforetheclosingofthe'IPATransaction.,IIOvers.UndertheBrooklynUnion/LILCOAgreement,Dr.Catacostnos,whocurrentlyserves'sChairmanoftheBoardof,Directors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficerofLILCO,'illserveas'ChairmanoftheBoardofDirectors',"ChaiimanoftheExecutiveCommitteeandChiefExecutive'Officerof'theHoldingCompanycomniencirigupon'consumma'tionoftheCombination.Inaddition,'r,Catell,whocurrentlyservesasChairmanandChief'ExecutiveOfficer'ofBrooklynUnionwillserveasPresidentandChief.OperatingOfficeroftheHoldingCompany'ommencinguponconsummationoftheCombination.'*~'IIII'TheBrooklynLrnion/L'ILCOAgreementalsoprovidesthatat"thefirstanniversary'fthec'onsummationoftheCombination,'Dr.CatacosinoswillceasetobetheChiefExecutiveOfficerbutwillcontinuetob'eChairmariofthe.BoardandChairmanoftheExecutiveCommitteeoftheHoldingCompanyandwillbecomeaconsultanttotheHoldingCompany,andMr.CatellwillsucceedDr.'CatacosinosasChiefExecutiveOfficeroftheHoldingCompany.Thearrangementstocausesuchelectionstotake'placeatthefirstanniversaryoftheconsummationoftheCombinationmay,bealteredonlybyavoteoftwo-thIidsoftheentireBoardofDirectorsofth'eHoldingCompany.I*IIIntheeventthattheMergerisnotconsummated,'theprovisiondescribedinthepiecedingparagraphwillnottakeeffectandDr.CatacosinoswillcontinuetoserveasChairmanofthe'BoardofDirectors,CliairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheHoldingCompany.FederalIncomeTaxConsiderationsTaxRulingsRequestedforLIPATransaction,ThepartiesintendtoseekrulingsfromtheIRSsubstantiallytothe'followingeffect:"I(1)thatexceptforanygainonLILCO'stransferoftheTransferredAssets,LILCOwillnotrecognizegainpursuant,toSection337(d)oftheInternalRevenue,Code,of1986,asamended(the",Code,"),orany,otherCodeprovision(a)uponLIPA'spurchaseofLILCOCommonStockand,theamendmentofLILCO'sarticlesofincorporation(toqualifyasaSection115entity),or(b)byreasonofLILCO'ssubsequentexclusionofincomeunderSection115oftheCode;(2)thattheLIPAAgreementconstitutesa"bindingagreement"forpurposesofcertainproposedregulationsunderSection337(d)oftheCode,sothattheissuanceoftheproposedregulationsasfinalregulationsbeforeorafterconsummationoftheLIPATransactionwouldnotaffectLILCO'snonrecognitionofgainasconfirmedbytheprecedingSection337(d)ruling;(3)thattheincomeofLILCOfollowingtheLIPATransaction,includinganyincomereceivedfromrate-payersthatisattributabletotheRegulatoryAssets,willbederivedfromitsactivityasapublicutilityandwillaccruetoapoliticalsubdivisionofNewYorkStatewithinthemeaningofSection115(1)andthereforewillbeexcludedfromgrossincomeunderSection115(l)whilethestockofLILCOiswhollyownedbyLIPA;and(4)thattheinterestpaidonindebtednessissuedbyLIPAtofinancetheLIPATransactionandtorefinancecertainLILCOindebtednesswillqualifyforexclusionfromgrossincomeunderSection103oftheCode.ThereceiptoffavorableIRSrulingsisa'conditiontotheobligationsofthepartiestoconsummatetheLIPATransactionundertheLIPAAgreement.NoassurancecanbegiventhattheIRSwillissueanyoralloftherequiredrulings.33 prices"atwhichbusinessesor'companiesmaybesoldinthefffuture',and:suchestimatesareinherentlysubjecttoIuncertainty.-'f~Ilw',fffflThe.BrooklynUnionBoardselectedMerrillLynch-toactasitsfinancialadvisorbecauseofMerrillLynch'sreputationasaninternationallyrecognizedinv'estmentbankingfirmwith,substantialexperienceintransactionssimilartotheCombinationand'becauseitisfamiliar.withBrooklyn,Unionanditsbusiness..Aspartofitsinvestmentbankingbusiness,MerrillLynchiscontinuallyengagedinthevaluationofbusinessesandtheirsecuritiesinconnectionwithmergersandhcquisitions.IffPursuanttoaletteragreementdatedJanuary,1;1995,asamendedasofOctober12,1995andasofMarch14,1997,BrooklynUnionhasagreedtopayMerrillLynch(i)afeeof$1,000,000onMarch14,1997againstwhichcertainretainerfeeswerecredited,(ii)anadditionalfeeof$1,500,000uponapprovaloftheCombinationbyholdersoftheBrooklynUnionCommonStock;(iii),an,additionalfeeof$9,000,000.uponclosingoftheCombination,and(iv)uponreceipt,byBrooklyn,Unionofanybreak-uporfftopping,feeorreimbursement.ofexpensesintheeventtheCombinationisnotconsummated,anadditionalfeeintheamountoftenpercent(10%)ofanamountequaltoanybreak-upor,toppingfeereceived,PyBrooklynUnion"plusanyexpense.reimbursementreceivedbyBrooklyn;Union;lessout-of-pocketexpensespaidbyBrooklynUniontothirdpartiesinconnectionwiththeCombination,providedthatanyadditionalfeepaidpursuanttoclauses(i)or(ii)aboveshallbecreditedagainst.thefeespayablepursuanttoclauses(iii)or(iv)above.Inaddition,BrooklynUnionhasagreedtoreimburseMemllLynchforitsreasonableexpenses(including,thereasonablefeesanddisbursementsofitslegalcounsel)andtoindemnifyMerrillLynch,andcertainrelatedpartiesfromandagainstcertain,liabilities,includingliabilitiesunder.thefederalsecuritieslaws,arisingoutof,itsengagement.BrooklynUnionhasalsoagreedthatMerrillLynchand/or,anyof.itsaffiliatesmayunderwriteorplaceanysecuritiesofanyentity,including,withoutlimitation,LIPA,issuedinconnectionwith,orasaresultoftheLIPATransaction.ffMerrillLynchhas,inthepast,providedfinancialadvisory,andfinancingservicestoBrooklynUnionandfinancingservicestoLILCOandhasreceivedfeesfortherenderingofsuchservices.Inaddition,inthe,ordinarycourseofMerrillLynch'sbusiriess,MerrillLynchmayactivelytradethesecuritiesofBrooklynUnionorLILCOforitsownaccountandfortheaccountsofitscustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.FortheopinionofLILCO'sfinancialadvisor,see".SelectedInformationConcerningLILCO-OpinionofLILCO'sFinancialAdvisor."WIPotentialConflictsofInterestsof'CertainPersonsintheCombinationandtheL'IPATransaction~ff'"~HInconsideringthereco'mmendations'oftheBrooklynUnionBoaidofDirectorsandtheLILCOBoardofDirectorswithrespecttotheBrooklynUniori/L'ILCOA'greementandtherecommendationoftheLILCOBoardofDirectorswithrespecttotheLIPAAgreement,BrooklynUnionandLILCOshar'eholdersshouldbeawarethatcertainofficersanddirectorsofBrooklynUnion'andLILCO(ortheiraffiliates)haveinterestsintheMergerthataredifferentfromandinadditiontotheinterestsofBrooklyn'UnionandLILCOshareholders'generally.See"SelectedInformationConcerningBrooklynUnion-PotentialConflictsofInterestsofCertainPersonsintheCombinationandtheLIPATransaction,"and"-SelectedInformationConcerningLILCO-PotentialConflictsofInterestofCertaihPersonsintheCombinationahd'theLIPATransaction."TheHoldingCompanyisrequiredbytheBrooklynUnion/LILCOAgreementtoprovideindemnificationandliabilityinsurancearrangementsfordirectorsandofficersofBrooklynUnionandLILCO.See"TheAgreement'andPlan'ofExchangeandMerger-Indemnification."'ff'IIICertainArrangementsRegardingtheDirectorsandManagementoftheHolding.CompanyFollowingtheCombinationandthe,LIPATransaction'BoardofDirecrors.TheBrooklynUnion/LILCOAgreementprovides,thatuponconsummation'oftheCombination,thenumberofdirectorscomprisingthefullBoardofDirectorsoftheHoldingCompany,willbe15persons,"sipofwhomwillhavebeendesignatedbyBrooklynUnion",sixofwhomwillhavebeendesignatedby32 Stockrangingfrom1.283xto1.105xduringtheHistoricalPeriod,and1;108xto.932xfortheProjectedPeriod.TheanalysisofdividendpercommonshareyieldedanimpliedexchangeratioforashareofLILCO,CommonStocktoashareofBrooklynUnionCommonStockrangingfrom1.333xto1.281xfortheHistoricalPeriod,and1.254xto1.156xfortheProjectedPeriod.Theanalysisofbook-,valuepercommonshareyieldedan:impliedexchangeratioforashareofLILCOCommonStock.toashare'ofBrooldynUnionCommonStockrangingfrom1.278xto'1.210xfortheHistoricalPeriod,and1.177xto1.110xforthe,ProjectedPeriod.-lihBasedupontheestimatedimpliedratiosinsuchanalyses,MerrillLynch:calculatedimpliedexchangeratiosofashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfrom1.105to1.333duringtheHistoricalPeriod,"and0.932to1:254fortheProjectedPeriod,compared'totheOriginalRatioof0.803."Ii,~'Thefollowingisa'summaryofthematerialfinancialandcomp'arativeanalysesperformedbyMerrillLynchinconnectionwiththepreparationoftheopinionofMerrillLynchdatedasofJune26,'1997..h'IifI,~'l-''Con&butionAnalysis'.MerrillLynchcalculatedthecontributionofeachofBrooklynUnionandLILCOtotheprofoimacombinedcompanyassumingthattheLIPATransactionisconsummatedbaseduponvaluations(i)*forBrooklynUnionusingestimated1997earning'saridmultiplesranging"from13.0xto14.0x,(ii)forLILCO's'gasdistributionbusinessusingestimated1997earningsandmultiplesrangingfrom13.0xto14.0x,(iii)forLILCO'selectricgenerationbusinessusingL'ILCO's'generatin'gcapacityandmultiplesrangingfrom$200to4250perkilow'attcapacity,(iv)fo'rLILCO'smanagement'contractwithLIPAbaseduponthepresentvalueofthefeesand'otherpaymentsprojectedbyLILCO'smanagementto'bereceivedbyLILCOduringthetermofthecontract,and(v)thehypbtheticalcashproceedsto'thecombinedcompany(net'ofestimatedtransaction-relatedexpensesandliabilities"but'ncludingthepresentvalueof'certairitax-relatedbenefits)ofapproximately$1.96billion.ThisanalysisshowedthatBrooklynUnionshareholderswouldcontributeapproximately"30%ofthetotalaggregatevalueof'thecombinedcompany&#x17d;andwouldownapproximately32%ofthecomb'inedcompanyonaproformabasis.ItIImpliedAcquisitionValuatioriAnalysis.MerrillLyn'chderivedanestimatedrangeofimpliedmultiplesforLILCO'selectricgenerationbusinessby'subtractingfromthe'aggregateequityvaluationoftheBrooklynUnionCommonStocktobeexchangedintheCombination(usingthe'LIPA"Ratioof0.880andariassumedpricepershareofBrooklynUnionCommonStockof$29.00)(i)thehypotheticalcashproceedstothecombinedcompany(net,ofestimatedtransaction-relatedexpensesandliabilitiesbutincludingthepresentvalueofcertaintax-relatedbenefits)ofapproximately$1.96billion,(ii)thepresentvalueofthefeesandotherpaymentsprojectedbyLILCO'smanageinenttobereceivedbyLILCOunderLILCO'smanagemen'tcontractwithLIPAduringthetermofsuchcontract,and(iii)multiplesforLILCO'sgasdistributionbusinessrangingfrom14.0xto16.0xestimated1997netincomeprovidedbyLILCO.ThisanalysisyieldedimpliedmultiplesofnetincomeforLILCO'selectricgenerationbusinessrangingfrom2.2xto5.5x.Itt-.Thesummarysetfoithabovedoesnotpurporttobea'completedescriptionoftheanalysesperfoimedbyMerrillLynch,althoughitisasummaryofthemateiialfinancialaridcomparativearialysesperformedbyMerrillLynchinarrivingattheMerrillLynchOpinion.Arrivingatafairnessopinionis'acomplexprocess'notnecessarilysusceptibletopartialanalysisorsummarydescription.MerrillLynchbelievesthatitsanalysesmustbeconsideredasa.who'ndthatselectingportionsofitsanalysesandofthefactorsconsideredbyit,withoutconsideringallsuchfactorsandanalyses,couldcreateamisleadingview,oftheprocesses-underlyingitsopinion.MerrillLynchdidnotassignrelativeweightstoanyofitsanalysesinpreparingitsopinion.ThemattersconsideredbyMerrillLynchinitsanalysesarebasedonnumerousmacroeconomic,operatingandfinancialassumptionswithrespect'toindustryperformance,generalbusinessandeconomicconditionsando'the'rmatters,manyofwhicharebeyondBrooldynUnion'sorLILCO'scontrol'attdinvolvetheapplication'ofcomplexmethodologiesandeducatedjudgment.Anyestimatesincorporatedinthe'analysesperformedbyMerrillLynch.arenotnecessarilyindicativeofactualpastorfutureresults,orvalues,whichmaybesignificantlymoretorlessfavorablethansuchestimates.Estimatedvaluesdonot'purporttobeappraisalsanddonotnecessarily,refiectthe31 ElectricPowerCompany/BaltimoreGasandElectricCompany(September1995),SouthwesternPublicServiceCompany/PublicServiceCompanyofColorado(August1995),CIPSCOIncorporated/UnionElectricCompany(August1995),NorthernStatesPowerCompany/WisconsinEnergyCorporation(May1995),Iowa-IllinoisGasandElectricCompany/MidwestResourcesInc.(July1994)andSierraPacificResources/WashingtonWaterPowerCompany.(June1994).TheGasMergerTransactionsandthedateeachtransactionwasannouncedwereasfollows:PacificEnterprises/EnovaCorporation(October1996),UnitedCitiesGasCompany/AtmosEnergyCorporation'(July1996),NorAmEnergyCorpiHoustonIndustriesIncorporated(August1996)andWashingtonEnergyCompanyInc./PugetSoundPower4Light'Company(October1995).n~MerrillLynchderivedanestimatedvaluationrangeforBrooklynUnionbycomparingtheoffervalue(definedastheequityvaluedeterminedusingmarketpricespriortotheannouncementdate)ineachoftheGasMergerTransactionsasamultipleof(i)netincomeoftheacquiredcompanyforthelatesttwelvemonths,whichrangedfrom18.0xto22.0x,and(ii)bookvalueoftheacquiredcompany,whichrangedfrom1.75xto2.25x.'errillLynchalsoderivedanestimatedvaluationrangeforLILCObycomparingtheoffervalueineachoftheElectricMergerTransactionsasamultipleof(i)latesttwelvemonthearningspershareoftheacquiredcompany,whichrangedfrom9.0xto13.0x,and(ii)bookvalueoftheacquiredcompany,whichrangedfrom1.00xt'o1.50x.BasedupontheestimatedvaluationsofBrooklynUnionandLILCOinsuchanalyses,MerrillLynchcalculatedanimpliedexchangeratioofashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfromOA51to0.988,comparedtotheOriginalRatioof0.803.JNoneofthebusinesscombinationsutilizedasacomparisonintheanalysesdescribedaboveisidenticaltotheproposedCombination.Accordingly,ananalysisofcomparablebusinesscombinationsisnotmathematical;ratheritinvolvescomplexconsiderationsandjudgmentsconcerningdifferencesinfinancialandoperatingcharacteristicsofthecomparablecompaniesandotherfactorsthatcouldaffectthepublictradingvalueofthecomparablecompaniesorcompanytowhichtheyarebeingcompared.kDiscounted'CashFlow,Analysis.MerrillLynchderivedestimatedvaluationrangesforBrooklynUnionandLILCObyperformingdiscountedcashflow("DCF")analyses.InthecaseofBrooklynUnion,theDCF,wascalculatedassumingdiscountratesrangingfrom8.0%to9.0%,andwascomprisedofthesumofthepresentvalueof(i)theprojectedunleveredfreecashflowsforyears1998to2002estimatedbyBrooklynUnion,and(ii)theyear2002terminalvaluebasedupon(a)arangeofmultiplesfrom12.0xto15.0xofprojectedyear2002netincome,and(b)arangeofmultiplesfrom1.60xto2.00xofprojectedyear2002bookvalue.InthecaseofLILCO,theDCFwascalculatedassumingdiscountratesrangingfrom7.75%to8.75%,andwascomprisedofthesumofthepresentvalueof(i)theprojected'unleveredfreecashflowsforyears1998to2002estimatedbyLILCO,and(ii)theyear2002terminalvaluebasedupon(a)arangeofmultiplesfrom8.5xto10.5xofprojectedyear2002netincome,and(b)arangeofmultiplesfrom0.80xto1.20xofprojectedyear2002bookvalue.BasedupontheestimatedvaluationrangesofBrooklynUnionandLILCOsetforthabove,MerrillLynchcalculatedanimpliedexchangeratioofashareofLILCOCommonStocktoashare'ofBrooklynUnionCommonStockrangingfrom0.553to0.924,comparedtotheOriginalRatioof0.803.ContributionAnalysis.MerrillLynchcalculatedthecontributionofeachofBrooklynUnionandLILCOtotheproformacombinedcompanywithrespectto(i)earningspercommonshare,(ii)dividendspercommonshareand(iii)bookvaluepercommonshare,ineachcaseforthefiscalyears1993through1995("HistoricalPeriod"),andforthefiscalyears1996through2000(the"ProjectedPeriod"),forBrooklynUnionusingreportedresultsforfiscalyear1996andcertainprojectionsprovidedbythemanagementofBrooklynUnion,andforLILCOusingcertainprojectionsforfiscalyears1996and1997obtainedfromFirst.CallCorporationandforfiscalyears1998through2000providedbyLILCOmanagement.TheanalysisofearningspercommonshareyieldedanimpliedexchangeratioforashareofLILCOCommonStocktoashareofBrooklynUnionCommon30 Ratiosfortheone-year,,two-yearandthree-yearperiodsendedonDect:mber19,1996,andcomparedsuchHistoricalTradingRatiostotheOriginalRatioof0.803,andtheLIPARatioof0.880.Thisanalysisshowedthatduringthethree-yearperiodendedonDecember19,1996,the-maximumHistoricalTradingRatiowas0.942,theminimumHistoricalTradingRatiowas0.542,andthemeanHistorical,TradingRatiosfortheone-year,two-yearandthree-yearperiodsendedonDecember19,1996were0.635,0.657and0.705,respectively.ComparablePubliclyTradedCompanyAnalysis.Usingpubliclyavailableinformation,MerrillLynchcomparedcertainfinancialandoperatinginformationandratios(describedbelow)forBrooklynUnionandLILCO,respectively,withthecorrespondingfinancialandoperatinginformationandratiosforseparategroupsofpubliclytra'dedcompaniesthatMerrillLynchdeemedtobereasonablycomparabletoBrooklynUnionandLILCO,respectively.ThecoinpaniesincludedintheBrooklynUnioncomparablecompanyanalyseswere:AGLResources,Inc.,LacledeGasCompany,NationalFuelGasCompany,NewJerseyResourcesCorporation,PeoplesEnergyCorporationandWashingtonGasLightCompany,(collectively,the"BrooklynUnionComparables").ThecompaniesincludedintheLILCOanalyseswere:BostonEdisonCompany,ConsolidatedEdisonCompanyofNewYork,Inc.,NewYorkStateElectric&GasCorporationandPublicServiceEnterpriseGroupIncorporated(collectively,the"LILCOComparables").MerrillLynchderivedanestimatedvaluationrangeforBrooklynUnionbycomparing:(i)currenttradingvalueto'estimated1997earningspersharefortheBrooklynUnionComparables,whichestimateswereobtainedfrominstitutionalBrokersEstimateSystemandrangedfrom13.0xto15.0x,comparedtoamultipleof14.4xforBrooklynUnionCommonStockbaseduponestimatesfromInstitutionalBrokersEstimateSystem;(ii)currenttradingvaluetobookvaluefortheBrooklynUnionComparables,whichrangedfrom1.50xto2.00x,comparedtoamultipleof1.69xforBrooklynUnionCommonStock;and(iii)the'dividendyieldratiofortheBrooklynUnionComparables,whichrangedfrom4.0%to6.0%;coitiparedtothedividendyieldratioof4.6%forBrooklynUnionCommonStock.IMerrillLynchderivedanestimatedvaluationrangeforLILCObycomparing:(i)currenttradingvaluetoestimated1997earningspersharefortheLILCOComparables,whichestimateswereobtainedfromInstitutionalBrokersEstimateSystem,whichrangedfrom8.0xto10.5x,comparedtoamultiple.of8.8xforLILCOCommonStockbaseduponestimatesobtainedfromInstitutionalBrokersEstimateSystem(ii)currenttradingvaluetobookvaluefortheLILCOComparables,whichrangedfrom0.80xto1.20x,comparedtoamultipleof0.91xforLILCOCommonStock;and(iii)thedividendyieldratiofortheLILCOComparables,whichrangedfrom'%to9%%uo,comparedtothedividendyieldratioof9.3%forLILCOCommonStock.Basedupon'theestimatedvaluationrangesofBrooklynUnionandLILCOinsuchanalyses,MerrillLynchcalculatedanimpliedexchangeratioofashareofLILCOCommonStocktoashareofBrooklynUnionCommonStockrangingfrom0.461to1.052,comparedtotheOriginalRatioof0.803.NopubliccompanyutilizedasacomparisonintheanalysesdescribedaboveisidenticaltoBrooklynUnionorLILCO.Accordingly,ananalysisofpubliclytradedcomparablecompaniesisnotmathematical;ratheritinvolvescomplexconsiderationsandjudgmentsconcerningdifferencesinfinancialandoperatingcharacteristicsofthecomparablecompaniesandotherfactorsthatcouldaffectthepublictradingvalueofthecomparablecompaniesorcompanytowhichtheyarebeingcompared.MergerTransactionAnalysis.Usingpubliclyavailableinformation,MerrillLynchreviewedtwelvetransactionsannouncedbetweenJune28,1994andOctober.14,1996,involvingthemergerofselectedelectricutilitycompanies(the"ElectricMergerTransactions"),and'fourtransactionsannouncedbetweenOctober18,1995andOctober14,1996,involvingthemergerofgasdistributioncompanies(the"GasMergerTransactions").TheElectricMergerTransactionsandthedateeachtransactionwasannouncedwereasfollows:EnovaCorporation/PacificEnterprisesInc.(October1996),CenteriorEnergyCorporation/OhioEdisonCompany(September1996),AtlanticEnergy,Inc./DelmarvaPower&LightCompany(August1996),'ortlandGeneralCorporation/EnronCorp.(July1996),UtiliCorpUnitedInc./KansasCityPower&LightCompany(January1996),IES;,IndustriesInc./InterstatePowerCompany/WPLHoldings,Inc.(November1995),Potomac29 Union/LILCOAgreement;(x)reviewedtheLIPAAgreement;and(xi)'reviewedsuchotherfinancialstudiesandanalysesandperformedsuchotherinvestigationsandtookintoaccountsuchothermattersasMerrillLynchdeemednecessary,includingMerrillLynch'sassessmentofgeneraleconomic,marketandmonetaryconditions.InpreparingtheMerrillLynchOpinion,MerrillL'ynchassumedwiththeconsentoftheBrooklynUnionBoardthattheLIPATransaction,ifconsumma'ted,wouldbeconsummatedonthetermscontainedintheLIPAAgreement.InpreparingtheMerrillLynchOpinion,MerrillLynchalsoassumedandreliedontheaccuracyandcompletenessofallinformationsuppliedorotherwisemadeavailabletoitorpubliclyavailableordiscussedwithorreviewedbyorforit,andMerrillLynchdidnotassumeanyresponsibilityforindependentlyverifyingsuchinformationorundertakinganindependentevaluationorappraisalofanyoftheassetsorliabilitiesofBrooklynUnionorLILCO.Inaddition,MerrillLynchdidnotconductanyphysicalinspectionofthepropertiesorfacilitiesofBrooklynUnionorLILCO.WithrespecttothefinancialforecastsfurnishedtoordiscussedwithMerrillLynchbyBrooklynUnionandLILCO,MerrillLynchassumedthattheyhadbeenreasonablypreparedandreflectedthebestcurrentlyavailableestimatesandjudgmentsofBrooklynUnion'sorLILCO'sman'agementastotheexpectedfuturefinancialperformanceofBrooklynUnionorLILCO,asthecasemaybe,andastotheexpectedfutureprojectedoutcomesofvariouslegal,regulatoryandothercontingencies.Inthatregard,L'ILCO'sfinancialforecastsforthecaseinwhichLILCOretainsownershipofitselectrictransmissionanddistributionsystem,substantiallyallofitselectricregulatoryassetsandcertainotherinterestsandtheLIPATransactionisnotconsummated,assumed,amongotherthings(i)thatLILCOwillbesubjecttonoreductioninelectricratesforthefive-yearperiodendingDecember31,2002,(ii)thatK.ILCOwillfullyrecoverinitscurrentandfutureelectricratesallofitscostsreferredtointheNotestoFinancialStatementsofLILCOfortheyear'endedDecember31,1996,associatedwiththetransferoftheShorehaniNuclearPowerStationtoLIPAanddecommissioningthereof,ontermsnolessfavorabletoLILCOthanthetermscurrentlyineffect,and(iii)that'herewillbenoadversechangestoLILCOingeneralcompetitiveconditionsforthetransmissionandsaleofelectricityintheareasservicedbyLILCOthroughtheconstructionofnewtransmissionlinestoLongIslandorotherwise.MerrillLynchassumedthattheCombinationwillbeaccountedforasapoolingofinterestsinthecasewheretheLIPATransactionisnotconsummatedandthattheivfergerwillqualifyasatax,-freereorganizationforU.S.federalincometaxpurposes.TheMerrillLynchOpinionwas,necessarilybaseduponmarket,economicandotherconditionsastheyexistedandcouldbeevaluatedasofthedateofsuchopinion.MerrillLynchassumedthatinthecourse'ofobtainingthenecessaryregulatoryorotherconsentsorapprovalsfortheCombinationandtheLIPATransaction,norestrictions,includinganydivestiturerequirementsoramendmentsormodifications,willbeimposedthatwillhaveamaterialadverse.effectonthecontemplatedbenefitsoftheCombinationortheLIPATr'ansaction.TheMerrillLynchOpinionwasaddressedtotheBrooklynUnionBoardanddoesnotconstitutearecommendationtoanyshareholdersastohowsuchshareholdersshouldvoteontheproposedCombination.InconnectionwiththeprepamtionoftheMerrillLynchOpinion,MerrillLynchwasnotauthorizedbyBrooldynUnionortheBrooklynUnionBoardtosolicit,norhasMerrillLynchsolicited,third-partyindicationsofinterestfortheacquisitionofall,oranypartofBrooklynUnion.Inaddition,MerrillLynchexpressednoopinionastowhatthevalueoftheHoldingCompanyCommonStockactuallywillbewhenissuedtothehqldersofsharesoftheBrooklynUnionCommonStockuponconsummationoftheCombinationorwhatthevalueoftheBrooklynUnionCommonStock,orLILCOCommonStockwillbebetweenthedateofsuchopinionandtheconsummationoftheCombination.NootherlimitationswereimposedbyBrooklynUniononMerrillLynchwithrespecttotheinvestigationsmadeorproceduresfollowedbyMerrillLynchinrenderingitsopinion.ThefollowingisasummaryofthematerialfinancialandcomparativeanalysesperformedbyMerrillLynchinarrivingattheMerrillLynchopiniondeliveredtotheBrooklynUnionBoardonDecember29,1996.TradingRatioAnalysis.MerrillLynchreviewedtheperformanceofthedailyclosingpricespershareofLILCOCommonStockandBrooklynUnionCommonStockinrelationtoeachotherforthethree-yearperiodendedonDecember19,1996.MerrillLynchalsoreviewedthehistoricalratiosofsuchdailyclosingpricespershareofLILCOCommonStocktothoseofBrooklynUnionCommonStock(the"HistoricalTradingRatios")fortheperiodfromDecember19,1993throughDecember19,1996,andthemeanofsuchHistoricalTrading28 Opinion.ofBrooklynUnion'sFinancialAdvisor'OriDecember29,1996,Merr'illLynchdelivereditsoralopinion,which'wassubsequentlyconfirmedinawritten'opiniondatedasofsuchdate,totheBrooklynUnionBoardtotheeffectthat,a'sofsuchdate,andbasedupontheassumptionsmade,mattersconsideredandlimitsofreviewsetforthinsuchopinion,theBrooklynUnionRatioofoneshareofHoldingCompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStockfromafinancialpointofviewiftheLIPATransactionwerenotconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.803sharesofHoldingCompanyCommonStock.InconnectionwiththeapprovalbytheBrooklynUnionBoard"oftheBrooklynUnion/LILCOAgreement,MerrillLynchdelivereditsopiniontotheBrooklynUnionBoardonJune26,1997totheeffectthat,asofsuchdate,andbasedupontheassumptionsmade,mattersconsideredandlimitsofreviewsetforthinsuchopinion,theBrooklynUnionRatioofoneshareofHoldingCompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStockfromafinancialpointofviewiftheLIPATransactionwereconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.880sharesofHoldingCompanyCommonStock.Inaddition,MerrillLynchdelivereditswrittenopiniontotheBrooklynUnionBoarddatedasofthedateofthisJointProxyStatement/Prospectus,to,theeffectthat,asofsuchdate,and.basedupontheassumptionsmade,mattersconsideredandlimitsofreviewsetforthinsuchopinion,theBrooklynUnionRatioof,oneshareofHoldingCompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStockfromafinancialpointofviewiftheLIPATransactionwereconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.880sharesofHoldingCompanyCommonStock,andiftheLIPATransactionv/erenotconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.803sharesofHoldingCompanyCommonStock.Referenceshereintothe"MerrillLynchOpinion"refertothewrittenopinionofMerrillLynchdatedasofthedateofthisJointProxyStatement/Prospectus.'copyoftheMerrillLynch,Opinion,whichsetsforththeassumptionsmade,mattersconsideredandcertainlimitationsonthescopeofreviewundertakenbyMerrillLynch,isattachedasAnnexEtothisJointProxyStatement/Prospectus.BrooklynUnionshareholdersarcurgedtoreadsuchopinioninitsentirety.TheMerrillLynchOpinionisdirectedonlytothefairnessoftheBrooklynUnionRatiofromafinancialpointofviewanddoesnotconstitutearecommendationtoany,BrooklynUriionshareholderastohowsuchshareholdershouldvoteattheBrooklynUnionMeeting.Thesummary'oftheMerrillLynchOpinionsetforthinthisJointProxyStatement/Prospectusis'qualifiedinitsentiretybyreferencetothefulltextofsuchopinion.InarrivingattheMerrillLynchOpinion,MerrillLynch,amongotherthings:(i)reviewedBrooklynUnion'sAnnualReports,Forms10-KandrelatedfmancialinformationforthethreefiscalyearsendedSeptember30,1996andBrooklynUnion'sForms10-QandtherelatedunauditedfinancialinformationforthequarterlyperiodsendingDecember31,1996andMarch31,1997;(ii)reviewedLILCO'sAnnualReports,Forms10-KandrelatedfinancialinformationforthethreefiscalyearsendedDecember31,1996andLILCO'sForm10-QandtherelatedunauditedfinancialinformationforthequarterlyperiodendingMarch31,1997;(iii)reviewedcertainin'fo'rmation,includingfinancialforecasts,relatingtothebusiness,earnings,cashflow,assetsandprospectsofBrooklynUnionandLILCO,furnishedtoMerrillLynchbyBrooklynUnionandLILCO;(iv)conducteddiscussionswithmembersofseniormanagementofBrooklynUnionandLILCOconcerningtheirrespectivebusinesses,regulatoryenvironments,prospectsandstrategicobjectives;(v)reviewedthehistoricalmarketpricesandtradingactivityforBrooklynUnionCommonStockandLILCOCommonStockandcomparedthemwiththatofcertainpubliclytradedcompanieswhichMerrillLynchdeemedtobereasonablysimilartoBrooklynUnionandLILCO,respectively;(vi)comparedtheresultsofoperationsofBrooklynUnionandLILCOwiththatofcertaincompanieswhichMerrillLynchdeemedtobereasonablysimilartoBrooklynUnionandLILCO,respectively;(vii)comparedtheproposedfinancialtermsof.thetransactionscontemplatedbytheBrooklynUnion/K,ILCOAgreementwiththefinancialtermsofcertainothermergersandacquisitionswhichMerrillLynchdeemedtoberelevant;(viii)consideredthepotentialproformaeffectoftheCombination,includingonBrooklynUnion'scapitalizationratiosandearnings,dividends.andbookvaluepershare;(ix)reviewedtheBrooklyn27 BrooklynUnionBoardreferredtoinclause(vii)ofthefollowingparagraph.TheBrooklynUnion.BoardconsultedwithitsfinancialadvisorandlegaladvisorsandmanagementofBrooklynUnion.Aftercarefulreviewandconsideration,theBrooklynUnionBoarddeterminedthattheCombinationisadesirabletransactionfromthestandpointoftheBrooklynUnioncommonshareholders.InreachingitsdecisiontoapprovetheBrooklynUnion/LILCOAgreement,andjnadditiontothefactorsdescribedabove,theBrooklynUnionBoardconsideredthefollowingfactors:(i)thecurrentandhistoricalmarketpricesoftheBrooklynUnionCommonStockandtheLILCOCommonStock(includingthefactthatfromDecember1993toDecember.1996,theratiooftheclosingpriceofLILCOCommonStock.totheclosingpriceofBrooklynUnionCommonStockhasrangedbetween0.542to0.942,andtheclosingpricesofBrooklynUnionCommonStockandLILCOCommonStockonDecember26,1996were$30.625and$19.125,respectively);(ii)informationconcerningthefinancialperformance,condition,businessoperationsandprospectsofeachofBrooklynUnionand'LILCO',(iii)theeffectsoftheCombinationonBrooklynUnibn'sshareholders,includingtheopportunitytoshareintheanticipatedbenefitsofownershipofthecombinedenterprise;(iv)theexpectedfederalincometaxtreatmentoftheCombinationasatax-freereorganizationtoBrooklynUnionshareholders(asdescribedunder"FederalIncomeTaxConsiderations-MaterialFederalIncomeTaxConsequences");(v)theimmediatereductioningasandelectricratestorefiectanticipatedsynergysavings,ascontemplatedbyBrooklynUnionandLILCO,andthebeliefthatcustomerswillbenefitfromabroaderrangeofinnovativeenergyproductsandservices;(vi)thetermsoftheBrooklynUnion/LILCOAgreement,whichprovideforbalancedrepresentations'andwarranties,conditionstoclosing.andrightstotermination;and(vii)theopinionofBrooklynUnion'sfinancialadvisor,MerrillLynch,totheeffectthat,asofthedatehereofandbasedupontheassumptionsmade,matters.consideredandlimitsofreviewin,connectionwithsuchopinion,theBrooklynUnionRatioofoneshareofHoldingCompanyCommonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommon'StockfromafinancialpointofviewiftheLIPATransactionwereconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.880sharesofHoldingCompanyCommonStock,andiftheLIPATransactionwerenotconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.803sharesofHoldingCompanyCommonStock.In'eterminingthattheCombinationisfairtoBrooklynUnion'sshareholders,theBrooklynUnionBoardconsideredtheabovefactorsasawholeanddidnotassignspecificorrelativeweightstothem.IntheviewoftheBrooklynUnionBoard,eachofthefactorslistedabovereinforceditsbeliefthatthecombinedentitywouldhaveexcellentbusinessprospectsgoingforward..BecauseBrooklynUnion'sshareholderscollectivelywouldownapproximately34%(or32%if'theLIPATransactionisconsummated)of.thecombinedentitybasedupon.thecapitalizationofthecompaniesasofDecember29,1996,thedateof"theOriginalAgreement,theprospectsofsuchentitywereanimportantfactor'totheBrooklynUnionBoardindeterminingwhethertoapprovethetransaction.THEBROOKLYNUNIONBOARD,BYAUNANIMOUSVOTE,HASADOPTEDTHEBROOKLYNUNION/LILCOAGREEMENT,BELIEVESTHATTHETERMSOFTHECOMBINATIONAREFAIRTOBROOKLYNUNION'SSHAREHOLDERS,ANDUNANIMOUSLYRECOMMENDSTHATTHESHAREHOLDERSOFBROOKLYNUNIONVOTETOADOPTTHEBROOKLYNUNION/LILCOAGREEMENT.Inconsideringthere'commendationoftheBrooklynUnionBoardwithrespecttotheBrooklynUnion/LILCOAgreement,shareholdersshouldbeawarethatcertainmembersofBrooklynUnion'smanagementandtheBrooklynUnionBoardhavecertaininterestsintheCombinationthataredifferentfrom,orinadditionto,theinterestsofshareholdersofBrooklynUniongenerallyandthatcouldpotentiallyrepresentconllictsofinterest.TheBrooklynUnionBoardwasawareoftheseinterestsandconsideredthem,amongothermatters,inadoptingtheBrooklynUnion/LILCOAgreement.See"TheBrooklynUnion/LILCOCombination-PotentialConfiictsofInterestsofCertainPersonsintheCombination."FortherecommendationoftheLILCOBoard,see"SelectedInformationConcerningLILCO-RecommendationoftheLILCOBoard,"26 CommonReasonsfortheCombinationBrooklynUnionandLILCObelievethat,thecombinedcompany,itsshareholdersanditscustomerscanbenefitsignificantlyfromthestrategicbenefitswhichtheyexpecttoresultfromtheCombination,whichincludethefollowing:~CustomersofBrooklynUnionandLILCOshouldrealizelowerratesasaresultofthesubstantialsynergysavingsanticipatedtoberealizedthroughthecombinationofthecompanies'perationsand,iftheLIPATransactionisconsummated,electriccustomersshouldrealizesubstantiallylowerratesa'saresultofLIPA'sexemption'frompaymentoffederalincometaxanditsrefinancingofLILCO'sdebtwithtax-exemptfinancing.~Thegreaterfinancialandoperationalresourcesavailabletothecombinedcompanyshouldcreateastrongercompetitorinthecontinuingdevelopmentofacompetitiveenergymarketplace.~Shareholdersofbothcompanieswillhavetheopportunitytoparticipateintheupsidepotentialoftheconvergenceofgasandelectriccompanieswithintheenergyindustry'.Thecombinedcompanyisexpectedtocreateaplatformtomarket,tradeandarrangephysicaldeliveryofenergyproductsandrelatedservicesonalargescaletomajormarketareas.~BycombiningthebusinessesofBrooklynUnionandLILCOasseparatesubsidiariesownedbyaholdingcompany,thecombinedcompanyshouldbenefitfromgreaterflexibilityinconductingandfinancingnon-regulatedoperationsthaniscurrentlyavailabletoeitherBrooklynUnionorLILCO.ThecombinedcompanyshouldalsohavegreaterflexibilitytoinvestinnewlinesofbusinessthaniscurrentlyavailabletoeitherBrooklynUnionorLILCO.Withgreaterflexibilitytoraiseandcommitcapitaltounregulatedoperationsintheenergybusiness,thecombinedcompanywillbebetterpositionedtotakeadvantageofthemarketopportunitiespresentedintheincreasinglycompetitiveenergyindustry.BrooklynUnionandLILCObelievethatthesestrategicbenefitswillbefurtherenhancedthroughconsummationoftheLIPATransaction.Theestimatednetproceedsofapproximately$1.7billionwillprovidetheHoldingCompanywithsubstantialfinancialresourceswhichBrooklynUnionandLILCOanticipatewillbeusedinparttomakeacquisitionsthatwillcomplementtheoperationsoftheHoldingCompany.Particularlyinlightofthesignificantproposedrestructuringsandacquisitionsannouncedbyexistingutilities,theHoldingCompanyshouldbewellpositionedfinanciallytotakeadvantageoftheincreasedopportunitieswhicharelikelytobe,presentedoverthenextseveralyearstoexpanditsbusiness.NodeterminationwithrespecttosuchacquisitionopportunitieshasyetbeenmadebyeitherBrooklynUnionorLILCO.RecommendationoftheBrooklynUnionBoardofDirectorsTheBrooklynUnionBoardbelievesthatthetermsoftheCombinationarefairto,andinthebestinterestsof,BrooklynUnionanditsshareholders.Accordingly,theBrooklynUnionBoard,has'unanimouslyadoptedth'BrooklynUnion/LILCOAgreement,andunanimously'recommendsitsadoptionbytheBrooklynUnionshareholders.TheBrooklynUnionBoardbelievesthattheCombinationrepresentasignificant'trategicopportunityforBrooklynUnion.TheBrooklynUnionBoardalsobelievesthattheLongIslandmarketpresentsexcellentopportunitiesforgrowthofthegasbusinessandtheprovisionofotherenergyrelatedservices.Thismarketisparticularlyattractivebecausethereisanextremelylowpenetrationofgasasapercentageofthetotalenergyusageinthatregion.ThetermsoftheBrooklynUnion/LILCOAgreement,includingtheRatios,weretheresultofarm'-lengthnegotiationsbetweenBrooklynUnionandLILCO.InfixingtheRatiosinthenegotiationprocess,"BrooklynUnionmanagementreliedtoalargeextentoncertainofthefinancialanalysesofMemllLynchsummarizedbelowunder"OpinionofBrooklynUnion'sFinancialAdvisor."AlthoughMerrillLynchneithermadeanyrecommendationsnorexpressedanyopiniontoBrooklynUnionmanagementortheBrooklynUnionBoardduringsuchnegotiationsregardingtheRatios,MerrillLynchsubsequentlydelivereditswrittenopiniontothe25 Aftertheseboardmeetings,theOriginalAgreementandtheStockOptionAgreementsweresigned.RenewednegotiationswithLIPAcommencedinJanuary1997.FromthatdateuntilMarch19,1997,LIPA,LILCOandBrooklynUnion,throughtheirofficersandoutsideadvisors,conductedextensivenegotiations.DuringthisperiodandthroughMay1997,LIPAanditsadvisorsconductedextensiveduediligenceinvestigationsofLILCO'sfinancial,legalandbusinessrecords,includinginterviewswithLILCOpersonnel.Thenegotiationsfocusedonatransactionstructureinwhichcertainassets'ofLILCO,includingitsgas,generatingandcommonplantassets,wouldbetransferredtoanewcompanytobeownedbyLILCOandBrooklynUnionshareholdersimmediatelypriortoacashmergerofLILCOwithanacquisitionsubsidiarytobeformedbyLIPA,asaresultofwhichLILCOwouldbecomeawholly-ownedsubsidiaryofLIPA.Theprincipalissuesduringthenegotiationsweretheidentificationoftheassetstobedistributed'byLILCO,thepricetobepaidbyLIPA,thetreatmentofLILCO'spreferredstockanddebt,thetermsandconditionsofamanagementservicesagreement,apowersupplyagreementandotherserviceagreementstobeenteredintobyLILCOwiththenewcompanyandtherightsLIPAwouldhavetoacquirethegeneratingfacilitiesandtodevelopcertainrealestateparcelsforfuturegenerating,transmissionanddistributionfacilities.Inaddition,thenegotiationsincorporatedLIPA'sacquisitionof'LILCO'scurrentrightsintheShoreham"propertytaxandrelatedcasesandcertainprovisionsrelatingtootherpendingandfuturepropertytaxcasesandtheanticipatedLIPAsettlemenfofthesecasesafterclosing.ThesenegotiationsculminatedinameetingonIvIarch18,1997,attendedbyDr.Catacosinos,otherLILCOofficersandrepresentativesofDillonRead,thethencurrentChairmanof,LIPA,otherLIPAofficialsandrepresentativesofIJearStearns,andMr.CatellandrepresentativesofMerrillLynch,Atthatmeeting,thefinalpricingtermsfortheacquisitionbyLIPAofLILCOwereagreedtoandsubstantiallyfinaltermsforthemanagementservicesandrelatedagreements,-wereagreedtoimmediatelythereafter.Theseagreementsweredocumentedinanon-bindingAgreementinPrinciple,datedasofMarch19,1997,amongLIPA,LILCOandBrooklynUnion.IThepartiesandtheirrespectiveoutsideadvisorsthenpreparedandnegotiatedthedefinitivelegaldocumentationcontemplatedbytheAgieementinPrinciple.Theresultingdraftsweresubmitted,,urisigned,onApril30,1997,tothestaffofthePACBtopermitthemtobegintheirevaluationoftheproposedtransaction.ThepartiesheldfurthernegotiationswithrespecttothedefinitivelegaldocumentationduringMayandJune.DuringthisperiodLIPAconductedaseriesofpublichearingsatwhichthecontentsoftheApril,30thdraftswerediscussed.OnJune16,1997,theLIPABoardofTrusteesauthorizedtheexecutionbyLIPAofthethencurrentdraftsofthedefinitivelegaldocumentation.Asaresultofsubsequentnegotiationsamon'gtheparties,certaintechnicalchangesweremadetosuchdrafts,InaccordancewiththeresolutionadoptedbytheLIPABoardofTrusteesattheirJune16thmeeting,thechangesnegotiatedafterJune16remainsubjecttoratificationbytheLIPABoardofTrustees.OnJune26,'1997,MerrillLynchdelivereditswrittenopiniontotheBrooklynUnionBoardofDirectorstotheeffectthat,asofsuch"dateandsubjecttothemattersdescribedtherein,theBrooklynUnionRatioofoneshareofHoldingCompa'nyCoinmonStockforeachshareofBrooklynUnionCommonStockwasfairtotheholdersofBrooklynUnionCommonStock'fromafinancialpointofviewifthe'LIPATransac'tionwereconsummated,underwhichcircumstanceseachshareofLILCOCommonStockwouldbeexchangedfor0.880sharesofHoldingCompanyCommonStock.HavingdiscussedatanumberofmeetingsthebenefitsthatwouldresultfromtheconsummationoftheLIPATransactionandliavingreceivedadvicefromMerrillLynch,legalcounselandmanagement,andhavingreceiveddraftsanddetaileddescriptionsoftheBrooklyriUnion/LILCOAgreement,theAmendedStockOptionAgreelnents(asdefinedbelow)andtheLIPAAgreement,theBrooklynUnionBoardofDirectorsexecuteda,unanimouswrittenconsentdatedJune26,1997approvingtheBrooklynUnion/LILCOAgreementandthe'AmendedStockOptionAgreements.OnJune26,1997,LILCOandBrooklynUnionexecutedanddeliveredtheBrooklynUnion/LILCOAgreement,pursuanttowhichBrooklynUnionconsentedtotheexecutionbyLILCOoftheLIPAAgreement.LILCOandBrooklynUniononJune26,1997,alsoexecutedanAmendedandRestatedBrooklynUnionStockOptionAgreementandanAmendedandRestatedLILCOStockOptionAgreement(collectively,the"AmendedStockOptionAgreements").AsofJune26,1997,LIPAandLILCOexecutedtheLIPAAgreement.
Finally,variousNewYorkStateofficialsandrepresentatives,indiscussionswithDr.CatacosinosandMr.Catell,encouragedLILCOandBrooklynUniontorecommencetheirnegotiationsafterreportswerepublishedinSeptember1996disclosingthe.terminationofthosenegotiationsinSeptember1996.Dr.CatacosinosandMr.CatellunderstoodfromthesediscussionsthattheStatewouldviewanagreementbetweenLILCOandBrooklynUnionfavorablysinceitwouldresultinratereductionsfromthesynergiestoberealizedinabusinesscombinationofLILCOandBrooklynUnion.Accordingly,discussionsbetweenthechiefexecutiveofficersofLILCOandBrooklynUnionbeganagainonDecember4,1996,and,aftermeetings(whichincludedtheinvestmentbankers)onDecember11,13and20,thechiefexecutiveofficersagreedtopursuethenegotiationsofadefinitiveagreementbaseduponanexchangeratiothatwouldresultinLILCOshareholdersowning66%,andBrooklynUnionshareholdersowning34%,ofthecommonequityofthecombinedentityintheabsenceofamutuallyacceptabletransactionwithLIPAand68%and32%,respectively,ifasatisfactorytransactionwithLIPAwereconsummated.Theadvisorsforbothpartiesmetandspokeseveraltimesoverthenextweek,discussedthetransactionandrelateddocumentation,agreedupontheproposedstructureforthetransactionandnegotiatedthetermsofanAgreementandPlanofExchange(the"OriginalAgreement"),theLILCOStockOptionAgreementbetweenLILCOandBrooklynUnion,datedasofDecember29,1996(the"LILCO'tockOptionAgreement")andtheBrooklynUnionStockOptionAgreementbetweenBrooklynUnionandLILCO,datedasofDecember29,1996(the"Brooklyn"UnionStockOptionAgreement",and,togetherwiththeLILCOStockOptionAgreement,the"StockOptionAgreements"),includingtheconditionstoclosing,theterminationprovisions,thebreak-upfees,thecovenantsthatwouldgoverntheoperatioiisofLILCOandBrooklynUnionpendingtheclosingandvariousothermattersthatwouldgoverntheoperationsoftheHoldingCompanyaftertheclosing.ThepartiesalsonegotiatedaprovisionthatcontemplatedarevisionintheexchangeratioifatransactionwithLIPAacceptabletoeachpartycouldbenegotiated.OnDecember24andDecember27,1996,thechiefexecutiveofficersmetagaintonegotiatetheprovisionsrelatingtomanagementsuccessionandthecompositionoftheHoldingCompany'sBoardofDirectors.FinalagreementwithrespecttosuchissueswasreachedonDecember28,1996.OnDecember29,1996,theL'ILCOBoardofDirectorsmetandreceivedadvicefromDillonRead,legalcounselandmanagement.DillonReadreviewedfinancialandotherinformationconcerningthetwocompaniesandtheproposedOriginalRatio.DillonReadthendelivereditsoralopiniontotheLILCOBoardofDirectorsthat,asofsuchdateandsubjecttothemattersdiscussed,theproposedOriginalRatioof0.803sharesofHoldingCompanyCoininonStockforeachshareofLILCOCommonStockwasfair,fromafinancialpointofview,totheholdersofLILCOCommonStock.CounseloutlinedindetailthetermsandconditionsoftheOriginalAgreementandtheStockOptionAgreementsanddescribedthechangesintheproposeddefinitivedocumentationfromthedraftspreviouslyfurnishedtotheLILCOBoardofDirectors.The,.LILCOBoardofDirectorsdiscussedtheadvicetheyhadreceivedandthepotentialbenefitstotheshareholders,customersandemployeesofLILCOthatwouldresultfroma,combinationofLILCOandBrooldynUnion.Aftersuchdiscussion,theLILCOBoardofDirectorsunanimouslyapprovedtheOriginalAgreementandtheStockOptionAgreements.AlsoonDecember29,1996,theBrooklynUnionBoardofDirectorsmetandreceivedadvicefromMerrillLynch,legalcounselandmanager@cut.MerrillLynchreviewedfinancialandother,informationconcerningthetwocompaniesandtheproposedBrooklynUnionRatio.MerrillLynchthendelivereditsoralopiniontotheBrooklynUnionBoardofDirectorstotheeffectthat,asofsuchdateandsubjecttothe,mattersdiscussed,theproposedBrooklynUnionRatiowasfair,fromafinancialpointofview,totheholdersofBrooklynUnionCommonStock.CounseloutlinedindetailthetermsandconditionsoftheOriginalAgreementandtheStockOptionAgreementsanddescribedthechangesintheproposeddefinitivedocumentationfromthedraftspreviouslyfurnishedtotheBrooklynUnionBoardof,Directors.TheBrooklynUnionBoardofDirectorsdiscussedtheadvicetheyhadreceivedandthepotentialbenefitstotheshareholdersandcustomersofBrooklynUnionthatwouldresult.fromacombinationofLILCOandBrooklynUnion.Aftersuchdiscussion,theBrooklynUnionBoardofDirectorsunanimouslyapprovedtheOriginalAgreementandtheStockOptionAgreements.23 theacquisitionofallofLILCOlsoperatingassets;thebreakupof;thegeneratingassets;andtheconstraintsthatwouldbeplacedonLILCOwithrespecttothereinvestmentofproceedsinordertoavoidadversetaxconsequences.iiiliOnMarch7,1996,Mr.CatellmetwiththeGovernorandexpressedhissupportforthe'Governor'seffortstodealwiththeLILCO.situationbutindicatedwhatheperceivedtobecertainshortcomingsin.theLIPAproposai.i'IInthewakeofthereleaseoftheTechnicalReport,LILCO,andBrooklynUnionrenewedtheirdiscussionswithrespecttoapossiblebusinesscombination.The,twochiefexecutiveofficersmet,onfebruary7,March1andMarch18,1996,todiscussthe,structure,pricingandothermaterialtermsofabusinesscombinationandthepotentialinvolvementofLIPAwithrespecttheretoOnApril8,:1996,thetwochiefexecutiveofficersmetagain,accompaniedbythecompanies'espectiveinvestmentbankers,"-todiscussvaluation.OnMay22,1996,thechiefexecutiveofficers,accompaniedbytheirinvestmentbankersandcounsel,mettodiscussstructure,legalissuesandsynergysavings.BrooldynUnionsoughttopersuadeLILCOtoapproachLIPAjointlywithaproposalalongthelinespreviouslysubmittedbyBrooklynUniontoLIPA.LILCO,soughttopersuadeBrooklynUniontoproceedwithaBrooklynUnion-LILCOcombinationagreement.BrooklynUnionandLILCO,wereunabletoreachanagreement,onpriceorstructure.a'~IDiscussionscontinuedduringthesummerof1996andadraft...combinationagreementwasprepared.by,LILCO'soutsidecounsel,anddeliveredtoBrooklynUniononAugust15;1996,Meetingswereheldbetweenthechiefexecutiveofficers,accompaniedbytheir:investmentbankers,.onAugust6,7and16,1996,andagain,butwithoutinvestmentbankers,onSeptember3,1996,butnoagreementwasreachedoneitherpriceorcorporategovernanceissues.Negotiations,atthatpointweresuspended.iMeanwhile,discussionsbetweenLIPAandLILCOduring1996;-wereinfiuencedbyavarietyofdevelopments.BeginninginMay1996,taxcounselforLIPAandtaxcounselforLILCObeganevaluatinganalternativestructure-which-theybelievedshould'bemoretaxefficient.ThatstructurecontemplatedapossibleacquisitionbyLIPAofLILCOCommonStockimmediatelyfollowingatransferbyLILCOofitsgasandgeneratingassetstoanewcompanyto'beowned'byLILCOshareholders.LIPAandLILCOrepresentativeshaddiscussionswiththe,IRSconcerningthe,possibility<ofobtainingprivateletterrulingswithrespecttothis,alternativetransactionandthetax-exemptstatusoftherelatedLIPAfinancing.Becauseofthecomplexityofthetransaction,substantivediscussionsbetweenthepartieswereslowed-during1996.NiilOnFebruary12,1996,thePSCissuedanordertoshowcausewhyLILCOshouldnotberequiredtoiinplementanimmediatereductioninitselectricratesforthethreeyearperiodfrom1997to2000.On.April17,1996,thatproceedingwasexpandedtoprovideforacomprehensive,evaluationofLILCO'selectric,rates.OnAugust2,1996,thePSCstaffformally,recommendedatemporary,5.2%decreaseinLILCO'-s,electricrates.ThePSCultimatelyhasnottakenactioninconnectionwiththe-1996proceeding,whichisstillpending.OnJune24,1996,Moody'sInvestorsServiceInc.announcedthatithaddowngradeditsratingof'$1.95billionoutstandingprincipalamountofLILCO'sgeneralandrefundingbondsfromBaa3to'Bal,citing"intenseregulatoryscrutiny"ofLILCO'selectricratesbythePSCandthe,uncertain.,course,of-thenegotiationsbetweenLIPAandLILCO.ilAnothersignificantdevelopmentaffectingthosenegotiationswasadecisiononNovember4;,1996,inPhaseIIofataxcertiorariproceedingbroughtbyLILCOagainst.certaintaxingjurisdictionsin,SuffolkCounty,'LongIsland,seekingrecoveryofpropertytaxespaidbyLILCOinrespectof:Shoreham.DuringPhaseI,LILCOhadbeenawarded$81millioninrefunds,andinterest.-ThePhase,IIdecision,whilesubjecttoappealbythedefendants,ruledinLILCO'sfavorandcouldresultinanaggregaterecoveryin.excessof$1billionforLILCO(whichamountwould,beusedto'reduceelectricrates).LILCOperceivedthisdecisionasputtinggreaterpressureonLIPAtoagreeonatransactionwithLILCOwhichwouldincludeasettlementoftheShorehampropertytaxcase.,I22 companies,includingrevisionstomanagements'ynergiesestimatesandtheexchangeof'non-publicinformationinconnectionwitheachcompany's"duediligence"investigationoftheother.Meanwhile,Governor-electGeorgePatakiorganizedataskforceonDecember23,1994,toevaluatethefeasibilityofaLIPAtakeoverofLILCOasproposedinOctober1994underthenGovernorMarioCuomo.During1995,the'LIPAActwasamendedtoprovideforagoverningboardoftrustees'orLIPAoffifteenmembers,nineappointedbytheGovernorandthreeeachbythemajorityleaderoftheNewYorkStateSenateandbytheSpeakeroftheNewYorkStateAssembly.Inaddition,thatamendmentmadeLIPAsubjecttotheNewYorkStatePublicAuthoritiesControlBoard(the"PACB"),asaresultofwhicheachagreementmadeby'IPAforthe'expenditureofmorethan$1millionrequiresunanimousapprovalbytherepresentativesappointedby'theGovernor,theSenatemajorityleaderandtheSpeakeroftheAssembly.Promptlyaftersuchamendmentwassignedinto'awonAugust2,1995,theLIPAboardoftrusteeswasreconstitutedasprovidedforintheamendment.As'aresultofsuchamendmentandthereportofsuchtaskforce,LIPA'sJune1995proposaltoacquireLILCOfor$17;50persharewasnotpursued.InSeptember1995,GovernorPatakiannouncedhisadministration'scommitmenttoformulateaStatetakeoverofLILCOthatachievedfourobjectives:adouble-digitreductioninelectricratesonLongIsland;protectionforLongIslandpiopertyownersagainstincreasedpropertytaxes;aplanforlong-termcompetitionintheLongIslandelectricmarket;andtheendofLILCOasLongIsland'selectricutility.GovernorPatakistatedthathewouldnotruleoutanyactionrequiredtoaccomplishtheseobjectives,includingahostileStatetakeoverortheexerciseofLIPA'scondemnationpowers.OnSeptember29,1995,LILCOadvisedLIPAbyletterthatLILCOwouldfullycooperatewithLIPAonanyconstructiveproposalmadebyLIPA.E'nSeptember1995,LIPAretainedBear,Stearns4Co.Inc.("BearStearns")asitsfiriancialadvisorsandinOctober1995retainedthelawfirmsofWinthropStimsonPutnam&RobertsasitscorporatecounselandHawkinsDelafieldO'oodasitsbondcounselandtheaccountingfirmofPriceWaterhouseLLP.AfteranorganizationalmeetinginearlyOctoberbetweenLIPAandLILCOrepresentativesandtheirrespectiveoutsideadvisors,LILCOandBearStearnsexecutedonOctober11,1995,aconfidentialityagreementpursuanttowhich,assubsequentlyamended,non-publicinformationwasprovidedbyLILCOtospecificLIPAofficialsandLIPA'soutsideadvisors.Duringthefallof1995andthereafterthrough1996and1997,substantialnon-publicinformationwassoprovidedbyLILCO.InSeptember1995,representativesofBrooklynUnionmettwicewithrepresentativesofLIPAtooutlineBrooklynUnion'sproposalfortheacquisition'fLILCO'sgeneratingandregulatoryassetsbyLIPAandthe'combinationofBrooklynUnionwiththeelectrictransmissionanddistributionsystemandgasoperationsofLILCO.OnSeptember27,1995,LIPAissuedawritten"RequestforInformation"whichsolicitedindicationsofinterestfromqualifiedpartiesinconnectionwitha"state-authorityfacilitatedfinancialrestructuring/acquisitionofLILCO."AccordingtosuchRequest,LIPAwas"intentonacquiringallorpartofLILCO'ssecuritiesand/orassetsatthelowestpossiblepriceandreservestherighttoacquireLILCOequitysecuritiesbelowcurrenttradingprices."Accordingtopublishedreports,thirty-onepartiesformallyrespondedtothisRequest.OnOctober19,1995,BrooklynUnion'submittedtoLIPAcertainadditionalinformationsupplementaltoitspresentationatLIPA'sSeptembermeetingsinresponsetotheLIPARequest.OnDecember5,1995,theProposalEvaluationCommitteeoftheLIPABoardofTrusteesissuedaTechnicalReportwhichrecommendedatransactionstructureunderwhichLIPAwouldacquiresubstantiallyallofLILCO'sassets,sellthegeneratingassetstomultiplebuyers,sellthegasassetstoanotherbuyerandretainaprivatepartytoma'nageforLIPA'sbenefitthetransmissionanddistributionsystemsoacquired.AlthoughthisproposalwasneveradoptedbytheLIPABoardofTrustees,andnopricewasdiscussedwithrespecttotheproposedpurchaseofassets,LIPArepresentativesoverthenextfewmonthsdiscussedtheproposalwithLILCOrepresentatives.OnFebruary28,1996,theLIPABoardofTrusteesauthorizedthecommencementofdiscussionswithLILCOandLIPArepresentativesthereafterbeganfurtherduediligencewith.respecttoLILCO.DuringsuchdiscussionsLILCOrepresentativesidentifiedseveralfeaturesoftlieproposalthatwereunacceptabletoLILCO:21 THEBROOKLYNUNION/LILCOCOMBINATIONBackgroundoftheCombinationkOverseveralyears,eachofBrooklynUnionandLILCOhasevaluatedthesignificantchangesalreadymadeandexpectedtobemadeintheregulatorystructureandcompetitiveenvironmentofthegasandelectricutilitybusinesses.Atboththefederalandstatelevels,therehave,beenimportantchangesintheregulationoftheutilityindustrybusinessesand,especiallywithrespecttotheelectric,utilitybusiness,thereistheprospectoffurtherdramaticchanges.Asdescribedmorefullybelowunder"CommonReasonsfortheCombination,"LILCOandBrooklynUnionbelievethatthecombinationofthecompanieswillprovidebothcompanies'hareholderswiththeopportunityto,benefitfromthecompetitiveopportunitiesprovidedbytherapidlychangingcircumstancesintheenergybusinesswhilealsoprovidingthelowerratesandincreasedcompetitionsoughtbythecompanies'egulatorsandcustomers.AstheeffortsofthePublicServiceCommissionoftheStateofNewYork(the"PSC")torestructuretheutilitybusinessinNewYorkfirstbegantotakeshapeinthePSC'sCompetitiveOpportunitiesProceedingin1994,Dr.WilliamJ.Catacosinos,theChiefExecutiveOfficerofLILCO,andMr.RobertB.Catell,theChiefExecutiveOfficerofBrooklynUnion,beganexploratory,discussionsaimedatdeterminingwhetherabusinesscombinationofLILCOandBrooklynUnioncouldprovideamutuallybeneficialplatformforrespondingtothechangesinregulationandtheenergymarketplace.Thosediscussionscontinuedthroughout1994and,1995.OnOctober13,1994,LIPAandtheNewYorkPowerAuthoritymadeajointproposaltoacquiretheoutstandingLILCOCommonStockforacashpurchasepriceof$21.50pershare.ThelastclosingsalespriceforLILCOCommonStockonOctober13,1994,whichwaspriortothereceiptofsuchproposal,was$16'ershare.LILCOadvisedLIPAonOctober24,1994,thatitwaspreparedtoevaluateseriouslythe$21.50pershareproposalmadebyLIPA.TheproposalwassupersededonJune20,1995,.byaproposalfromLIPAtoacquirealloftheoutstandingLILCOCommonStockforacashpurchasepriceof$17.50pershare.OnJune30,1995,LILCOrespondedbystatingthatsuchofferhadtoomanyuncertaintiesandcontingenciestowarrantfurtherreviewordiscussionsatthattime.NeitheroftheseoffersresultedinnegotiationsbetweenLIPAandLILCO.TheseoffersweremadebyLIPApursuanttoitsgoverningstatute,TheLongIslandPowerAuthorityAct(the"LIPAAct"),whichgrantedLIPAthestatutorypowertoacquireLILCO'sequityordebt,securitiesorassetsthroughanegotiatedtransaction,bytenderofferorthroughtheexerciseofLIPA'scondemnationpowers.TheLIPAActhadbeenenactedin1986inresponsetogrowingpoliticaloppositiontoLILCO'sconstructionoftheShorehamNuclearPowerPlant("Shoreham")onLongIsland.In1989,LILCO,LIPAandtheStateofNewYorkenteredintovariousagreementsunderwhichLILCOagreedtotransferitsinterestinShorehamtoLIPA.ShorehamwassubsequentlydecommissionedandLILCOrecordedsubstantialregulatoryassetsreflectingthepresentvalueofexpectedelectricserviceratessettoprovideforLILCO'sfinancialrecoverythroughtheamortizationofsuchregulatoryassets,andareturnonsuchregulatoryassets,overaforty-yearperiod.BrooklynUnionretainedtheinvestmentbankingfirmofMerrillLynch,Pierce,Fenner&SmithIncorporated("MerrillLynch")inJanuary1995andthelawfirmofWachtell,Lipton,Rosen&KatzinApril1995inordertoassistBrooklynUnioninevaluatingthefinancialandlegalimplicationsofabusinesscombinationwithLILCO,withthepotentialforinvolvementofLIPA.LILCOconsultedwithitslegalandfinancialadvisors,Kramer,Levin,Naftalis&Frankel("KramerLevin")andDillon,Read&Co.Inc.("DillonRead"),eachofwhichhadalreadybeenretainedinconnectionwiththeOctober1994LIPAandtheNewYorkPowerAuthorityproposal.OnOctober24,1995,LILCOandBrooklynUnionexecutedaconfidentialityagreementtofacilitatetheexchangeofnon-publicinformationbetweenthecompanies.Throughout1995,Dr.Catacosinos,Mr.Catell,representativesofDillonReadandrepresentativesofMerrillLynchhadseveralmeetingstodiscussthebasisforabusinesscombination.Representativesofeachcompanymettodiscussthepossiblesynergiesofanysuchcombination.Atvarioustimesduring1995and1996,representativesofLILCOandBrooklynUnionmettodiscussissuesassociatedwithcombiningthetwo20 CommonStockwillbeexchangedforsharesofcommonstock,parvalue$0.335,pershare("KeySpanCommonStock"),ofKeySpanEnergyCorporation,aNewYorkcorporationandawhollyownedsubsidiaryofBrooklynUnion("KeySpan"),pursuanttoanAmendedandRestatedAgreementandPlan,.of.Exchange,datedasofJune9,1997,byandbetweenBrooklynUnionandKeySpan(the"KeySpanAgreement").TheKeySpanShareExchangeisdescribedindetailin"theAnnexJ"tothis'JointProxyStatement/ProspectustobedeliveredtoBrooklynUnionshareholders.ConsummationoftheKeySpariShaieExchangeissubje'cttovariousconditions,includingtheadoptionoftheKeySpan"Agreementby'theholdersoftwo-thirdsofthe'votingpoweroftheoutstandingshares'ofBrooklyn'UnionCommonStockattheBrooklynUni'onMeeting".4ThisJointProxy'Statement/Prospectusalsoconstitute5theProspectu'sofKeySpanwithrespectto"issuanceofuptoapproximately'50,364,212sharesof'KeySpanCommonStocktobeissuedtoholdersofBrooMyn'UnionCommonStockonaone-to-onebasisinconnectionwiththeKe'ySp'anSha'reExchange.Unlessotherwisespecified,referencestotherightsandobligationsofBrooklynUnionundertheBrooklynUnion/LILCO'AgreenientandthesectsoftheCombinationorii%esharesofBrooklynUnionCommonStock,respectively,shouldbeihterpre'ledtorefertotherightsandoblig'ationsofKeySpanundertheBrooklynUnion/LILCO'Agreementandthe"'effectsoftheCombinationonthe'sharesofKeySpanCommoiiStock'nth'eventthattheKeySpanholdingcompanyproposalisapprovedbyBrooklynUnionshare/raidersandtheKeySpanShareExcltdngeiscompleted.Ifth'eKeySpanSliareExchangeisconsuntinated'andBrooklynUnioncommonshareholdersreceiveKeySpanComi>ionStock'eySpancommonshareholderswillreceivec'ommonsharesofthenewHoldingCompanyuponconsummationoftheCombination.TheKeySpanShareExchangeisexpectedtobeconsumntatedbeforet'eConibt'natio'n,'andneithertheKeySpanShareExcltangenor'tlie'Combinationiscoriditionedontheotheroccurring.rAll'i'nformationcontainedinthisJointProxyStatement/Prospectuswithrespect<<to.LILCO"-hasbeenprovidedbyLILCO.AllinformationcontainedinthisJointProxyStatement/ProspectuswithrespecttoBrooklynUnionorKeySpanhasbeenprovidedbyBrooklynUnion,NeitherLILCOnorBrooklynUnionassumes.anynesponsibilityfortheaccuracyorcompletenessoftheinformationprovidedbytheotherparty."I1ThisJointProxyStatement/ProspectusandtheaccompanyingformsofproxyarefirstbeingmailedtoshareholdersofBrooklynUnionandLILCOonoraboutJune30,1997.A"shareholderwhohasgivenaproxymayrevokeitan'ytimepriortotheapplicablemeeting.See"Meetings,VotingandProxies."19 0ThisJointProxyStatement/Prospectusalsorelatestotheproposedmerger(the"LIPATransaction")ofLILCOwithLIPAAcquisitionCorp.,aNew:Yorkcorporation,("LIPASub")andawholly-ownedsubsidiaryoftheLongIslandPowerAuthority,acorporatemunicip'alinstrumentalityandpoliticalsubdivisionoftheStateofNewYork("LIPA"),pursuant'to'theAgreementandPlanofMeiger,datedasofJune16,1997(the"LIPAAgreement"),byandamongLILCO,LIPASubandLIPA.UponconsummationoftheLIPATransaction,LIPASubwillbemergedwithandintoLILCO,which'illbe'thesurviving'corporation,foraggregatecashmergerconsiderationof$2,497,500,000(the"Consideration"),theSeriesAAPreferredStockwillbeexchangedforSeriesAApreferredstockoftheHoldingCompanyhavingsubstantiallythetermsassetforthinAnnexDheretoandeachoutstandingshareoftheSeriesCCPreferredStock,SeriesGGPreferredStock,SeriesQQPreferredStockandSeriesUUPreferredStock(exceptfor,shareswhoseholdersperfecttheirrightstoobtainjudicialappraisalthereof("DissentingShares"))willbecancelledandconvertedintotherighttoreceivecashintheapplicableamountssetforthintheiLIPA'Agreement~Inconnec'tion.withthe,consummationoftheLIPATransaction,LILCOwilltransfertotheHoldingCompanyoroneormoreofitswholly-ownedsubsidiaries(which.,maybelimitedliabilitycompanies),allofLIL'CO'sgas~assetsandoperations,non-nucleargeneratingassetsandoperationsandcommonplant'(asdescribedmorefullybelow,the"TransferredAssets'i):Consummationof;theL'IPATransactionissubjectto',variousconditions,",includingapprovaloftheLIPAAgreementbytheholdersoftwo-thirdsofthevotingpoweroftheoutstandingsharesofLILCOCommonStockandLILCOPreferred'Stock,votingtogetherasasingleclass;byamajorityofthevotingpower.ofallholdersof.LILCOPreferred,Stock,,votingtogetherasaseparateclass;byamajorityofthevotingpoweroftheoutstandingLILCOCommonStock,votingseparatelyasaclass;andbytheholdersofa'majorityofthevoting-powerofeach'seriesofLILCOPreferredStock,ineach'casevotingseparatelyasaclass,attheLILCOMeeting.HoldersofsharesofBrooklynUnionCommonStockwillnot.voteontheLIPAAgreement."-~.I'I.,InconnectionwiththeproposaltoadopttheLIPA,Agreement,eachoutstanding'shareofLILCOCommonStockisentitledtoonevote,eachoutstandingshareofLILCOPreferredStockhavingaparvalueof$100pershareisentitledtoonepoteandeachoutstandingshareofLILCOPreferredStockhavingaparvalueof$25pershare,isentitledto.one-quarten('/4)ofavote.Onlyholders.ofLILCO,CommonStockandeligibleLILCOPreferredStockofrecord,asoftheclose.ofbusiness,ontheRecordDatewillbeentitledtonotice,ofandtovoteinrespectoftheLIPAAgreementattheLILCO,Meetingoranyadjournmentsorpostponementsthereof.AsofJune23,1997,therewereissuedandoutstanding121,184,527sharesofLILCOCommonStockand21,674,000sharesofLILCOPreferredStock,ofwhich14,520,000weresharesofSeriesAAPreferredStock,'570,000were,sharesofSeriesCCPreferredStock,880,000weresharesofSeriesGGPreferredStock,3,464,000weresharesofSeriesQQPreferredStockand,2,240,000weresharesofSeriesUUPreferredStock.,ThisJointProxySfatement/ProspectusalsoconstifutestheProspectusoftheHoldingCompanywithrespecttotheissuanceof'(x)uptoapproximately'173',048,'739shares"ofHoldingCompanyCommonStockfobeissue'dtocommonshareholders"ofLILCOat'theapplicableratio(the""Ratib")'ofHoldingCompanyCommonStockforeachshare"ofLILCOCominon'Stockandtocommon'shareholde'rsofBrooklynUnionon'a'one-to-onebasis'nconnectionwitlitheCombination(the"BrooklynUnionRatio")'and(y)upto14,520,000sharesofHoldingCompanySeriesAApreferredstock,"pa'rvalue$25pershare("HoldingCom'panySeries'A'A.PreferredStock")fobeissuedtoholdersofSeriesAAPreferredStockofLILCO'onaone'-to-onebasisinconnectionwiththeLIPA"Agreement.TheR'atiowill'be(x)0.803"sharesofHoldingCompanyCoinmonStockforeachshar'eofL'ILCOCommonStockiftheCombin'ationisconsummatedbut'heLIPATransaction'snot'consummated'(the"OriginalRatio"),(y)0.880sharesofHoldingCompanyCommonStockforeachshare'fLIE.COCommonStockiftheCombinationisconsummatedandtheLIPATransactionisconsummated(the"LIPARatio")or(z)oneshareofHoldingCompanyCommonStockforeachshareofLILCO'ommonStock'iftheCombinationisnotconsummatedbuttheLIPATrarisactionisconsummated.'HoldersofLIL'CO'CommonSto'ckwill'own66%',68%or100%,respectively,oftheoutsfandingHoldingCompanyCommonStockandholdersofBrooklynUnionCommonStockwillown34%,32%a'nd0%,'respectively,oftheoutstandingHoldingCompanyCommonStockinsuchevents.IfIIIIIIIThisJointProxyStatement/ProspectusalsorelatestoanindependentproposaltorestructureBrooklynUnionintoaholdingcompanystructure(the"KeySpanShareExchange"),inwhichsharesofBrooklynUnion18 JOINTPROXYSTATEMENTOFTHEBROOKLYNUNIONGASCOMPANYANDLONGISLANDLIGHTINGCOMPANYPROSPECTUS'FBLHOLDINGCORP.ANDKEYSPANENERGYCORPORATION'hisJointProxyStatementandProspectus("JointProxyStatement/Prospectus")isbeingfurnishedtotheholdersofcommonstock,parvalue$5pershare,ofLILCO("LILCOCommonStock")andtotheholdersofSeriesAApreferredstock,parvalue$25pershare("SeriesAAPreferredStock"),SeriesCCpreferredstock,parValue$100pershare("SeriesCCPreferredStock"),SeriesGGpreferredstock,parvalue$25pershare("SeriesGGPreferredStock"),SeriesQQpreferredstock,parvalue'$25per'hare'("SeriesQQPreferredStock"),andSeriesUUpreferredstock,parvalue$25pershare("SeriesUUPreferredStock"),ofLILCO(suchseriesbeingcollectivelyreferredtohereinas"LILCOPreferredStock"),inconnectionwiththesolicitationofproxie'sbytheBoardofDirectorsofLILCOforuseattheAnnualMeetingofLILCOshareholderstobeheldonAugust7,1997,at3:00p.m.localtime,atTillesCenterforthePerformingArtsatLongIslandUniversity,C.W.PostCampus,NorthernBoulevard,Greenvale,NewYork11548andatanyandalladjournmentsorpostponementsthereof(the"LILCOMeeting"),andtheholdersofcommonstock,parvalue$0.33tr5pershare("BrooklynUnionCommonStock"),andtheholdersofPreferredStock,parvalue$100pershare,ofTheBrooklynUnionGasCompanyinconnection'withthesolicitationofproxiesofBrooklynUnionCommonStockbytheBoardofDirectorsofBrooklynUnionforuseattheSpecialMeetingofBrooklynUnionshareholderstobeheldonAugust7,1997,at3:00p.m.localtime,atOperaHouse,BrooklynAcademyofMusic,30LafayetteAvenue,Brooklyn,NewYork11217andatanyandalladjournmentsorpostponementsthereof(the"BrooklynUnionMeeting,"andtogetherwiththeLILCOMeeting,the"ShareholderMeetings").ThisJointProxyStatement/Prospectttsrelates,amongotherthings,totheproposedcombinationofLILCOandBrooklynUnion(the"Combination")",inwhichsharesofLILCOCommonStockwillbecometherighttoreceivesharesofcommonstock,parvalue$0.01pershare,("HoldingCompanyCommonStock"),ofBLHoldingCorp.,acorporationtobeformedunderthelawsoftheStateofNewYork(the,"HoldingCompany"),BrooklynUnionwillmergewithawhollyownedsubsidiaryoftheHoldingCompany(the"Merger")andsharesofBrooklynUnionCommonStock,willbeconvertedintosharesofHoldingCompanyCommonStock,allpursuanttoanAmendedandRestatedAgreementandPlanofExchangeandMerger,datedas'ofJune26,1997(the"BrooklynUnion/LILCOAgreement"),betweenLILCOandBrooklynUnion.ConsummationoftheCombinationissubjecttovariousconditions,includingtheadoptionoftheBrooklynUnion/LILCOAgreementbytheholdersoftwo-thirdsofthevotingpoweroftheoutstandingsharesofLILCOCommonStockandtheholdersoftwo-thirdsofthevotingpoweroftheoutstandingsharesofBrooklynUnionCommonStockattheShareholderMeetings.hInconnectionwiththeproposaltoadopttheCombination,eachoutstandingshareofLILCOCommonStockandeachoutstandingshareofBrooklynUnionCommonStockisentitledtoonevoteattheirrespectivemeetings.OnlyholdersofLILCOCommonStockandBrooklynUnionCommonStockofrecordatthecloseofbusinessonJune26,1997(the"RecordDate")willbeentitledtonoticeofandtovoteattheShareholderMeetingsoranyadjournmentsorpostponementsthereof.HoldersofBrooklynUnionpreferredstockasoftheRecordDateareentitledtonoticeoftheBrooklynUnionMeetingbutarenotentitledtovotethereat.AsofJune23,1997,121,184,527sharesofLILCOCommonStockand50,364,212sharesofBrooklynUnionCommonStockwereissuedandoutstanding.17 ComparativeDividendsandMarketPrices-BrooklynUnion,.BrooklynUnioncommonstockislistedandprincipallytradedontheNewYorkStockExchange.Thetablebelowsetsforththedividendspaidandthehighandlow"salespricesofBrooklynUnioncommonstockforthefiscalperiodsindicatedasreportedinTheWallStreet.JournalasNewYorkStockExchangeCompositeTransactions.YearEndedSeptember30,1995FirstQuarterSecondQuarter".ThirdQuarterFourthQuarter.YearEndedSeptember30,1996FirstQuarterSecondQuarter.ThirdQuarterFourthQuarter.YearEndingSeptember30,1997FirstQuarterSecondQuarter.ThirdQuatter(throughJune23,1997).PriceRangeDividendsPaidHighLow$0.3375$25N$21'A0.34752474220.347526%23740.3475'6%23V4$0.3475'29%$24N0.3550'9M25N"'0.3550278,247ih0.3550'28Vs24M$0.3550$32N$277/s0.365030Vi27'h0.3650";2926VsOnDecember27,1996,thelastfu/ItradingdaybeforethepublicannouncementoftheBrooklynUnion/LILCOAgreement,thehighandlowpricespershareof(i)LILCOcommonstockwere$19thand$19N,respectively,and(ii)BrooklynUnioncommonstockwere$318and$30iA,respectively.OnMarch18,1997,thelastfulltradingdaybeforethepublicannouncementofanagreementinprinciplerelatingtotheLIPATransaction,thehighandlowsalespricespershareof(i)LILCOcommonstockwere$23',s/isand$23Y4,respectively,and(ii)BrooklynUnioncommonstockwere$29Nand$29,respectively.OnJune25,1997,thelastfulltradingdaybeforeLILCOandLIPAexecutedanddeliveredtheLIPAAgreement,the,highandlowsalespricespershareoftheSeriesAAPreferredStockwere$26and$25.88,respectively.BrooklynUnionandLILCOshareholdersareencouragedtoobtaincurrentmarketquotationsforBrooklynUnioncommonstock,LILCOcommonstockandSeriesAAPreferredStock.16 ComparativeDividendsandMarketPrices-LILCO"~LILCOcommonstockislistedandprincipallytradedontheNewYorkStockExchangeandonthePacificStockExchange.ThetablebelowsetsforththedividendspaidandthehighandlowsalespricesofLILCOcommonstockforthefiscalperiodsindicatedasreportedinTheWallStreetJournalas,NewYorkStockExchangeCompositeTransactions.PriceRangeDividendsPaidHighLowYearEndedDecember31,1995FirstQuarter.SecondQuarter.ThirdQuarterFourthQuarterYearEndedDecember31,1996FirstQuarter.SecondQuarter.ThirdQuarter,FourthQuarterYearEndingDecember31,1997FirstQuarter.'SecondQuarter(throughJune23,1997)$0.4450.445OA45OA45$16Y4$13i/4,17'A~14N173/4ISN'17%,15N$0.4450.445$24/i$21>/423i/422s/4$0A45$18N$157ik044517M16i/s0A45173/416'.44522N17MTheL'ILCOSeriesAAPreferredStockislistedandtradedontheNewYorkStockExchange.ThetablebelowsetsforththedividendspaidandthehighandlowsalespricesoftheSeriesAAPreferredStockforthefiscalperiodsindicatedasreportedinTheWallStreetJournalasNewYorkStockExchangeCompositeTransactions.PriceRangeDividendsPaidHighLowYearEndedDecember31,1995"FirstQuarter.SecondQuarter.'hirdQuarterFourthQuarterYearEndedDecember31,1996FirstQuarter.SecondQuarter.ThirdQuarterFourthQuarterYearEndingDecember31,1997FirstQuarter.SecondQuarter(throughJune23,1997).$0.4968750.4968750.4968750.496875$0.4968750.4968750.4968750.496875$0.4968750.496875$23>/4$22Vi24N23Vs'252426'/423N$24s/s$23N&N23&iA2325s/424/4$26Nz$25i/426N25N15 ComparativePerCommon.ShareInformation-BrooklynUnion/LILCOCombinationwith'noLIPATransactionpThefollowingtablesummarizesthepercommonshareinformationforBrooklynUnionandLILCOonaproformacombined,equivalentandhistoricalbasis.TheLILCOpershareequivalentsare'calculatedbymultiplyingtheunauditedproformacombinedpershareamountsby0.803asLILCOshareholderswillreceive0.803sharesofthecommonstockoftheHoldingCompanyinexchangeforeachshareofLILCOCommonStock.ComparativePerShareInformationRUnauditedHoldingCompanyProFormaCombinedEarningspercommonshare(1)Cashdividendsdeclaredpercommonshare(4)BookvaluepercommonshareLILCOPerShareEquivalents(2)EarningspercommonshareCashdividendsdeclaredpercommonshareBookvalue'percommonshareBrooklynUnion-UnauditedHistoricalFinancialInformation(2)Earningspercommonshare(3)CashdividendsdeclaredpercommonshareBookvaluepercommonshare.LILCO-UnauditedHistoricalFinancialInformationEarningspercommonshare..CashdividendsdeclaredpercommonshareBookvaluepercommonshare............Atorforthe12monthperiodendedMarch31,199719961995$2.72$2.46$2.381.781.781.7823.74$2.18$1.98$1.911.431.431.4319.06$2.58$1.93$1.841.441.401.3720.00'2.24$2.19$2.131.781.781.7821.07.(1)BrooklynUnion'sunauditedbalancesheetasofMarch31,1997andresultsofoperationsforeachofthethree12monthperiodsduringthethreeyearperiodendedMarch31,1997havebeencombinedwithLILCO'sunauditedbalance,sheetasofMarch31,1997andresultsofoperationsforeachofthe)hree12monthperiodsduringthethreeyearperiodendedMarch31,1997toarriveattheunauditedproformacombinedbalancesheetasofMarch31,19)7andtheunauditedstatementsofincomeforeachofthethree12monthperiodsduringthethreeyearperiodendedMarch31,1997,fromwhichthecomparativepershareinformationhasbeenderived.(2)LILCOPerShareEquivalentsare0.803ofUnauditedHoldingCompanyProFormaCombinedpershareequivalents,whileBrooklynUnionpershareequivalentsarethesameasitshistorical.(3)IncludesgainsonthesaleofsubsidiarystockandaCanadianplantof$33.5millionor$0.68pershare,aftertaxes,offsetbyasubsidiaryreorganizationchargeof$7.8millionor$0.16pershare,aftertaxesforthe12monthperiodendedMarch31,1997.(4)BrooklynUnionandLILCOexpecttocontinuetheirrespectivecurrentdividendpoliciesuntilthecompletionoftheCombination.ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.14 SelectedUnauditedProFormaCombinedCondensedFinancialInformation-BrooklynUnion/LILCOCombinationwithnoLIPATransaction.ThefollqwingunauditedproformacondensedfinancialinformationreflectsadjustmentstothehistoricalfinancialostytementsofLILCOtogiveeffectto,theproposedmergerwithBrooklynUnioninaccordancewiththeCombination.TheunauditedproformacombinedcondensedbalancesheetatMarch31,1997giveseffecttotheCombinationasifithadoccurred..atMarch31,1997.Theunauditedproformacombinedcondensedstatementsofincomeforeachofthethree12monthperiodsinthethreeyearperiodendedMarch31,1997giveeffecttotheCombinationasifithadoccurredatApril1,1994.ThesestatementsarepreparedonthebasisofaccountingfortheCombinationusingthepoolingofinterestsmethodofaccountingandarebasedontheassumptionssetforthinthenotesthereto.nr"Wehavepresentedbelowtheselectedunauditedproformacombinedcondensedfinancialinformation,reflectingtheproposedCombination.YoushouldnotrelyontheunauditedproformainformationasbeingindicativeofthehistoricalresultsthatwewouldhavehadorthefutureresultsthatwewillexperienceaftertheCombination.See"UnauditedProFormaCombinedCondensedFinancialInformation"onpage57.-SELECTEDUNAUDITEDPROF9ORMAFINANCIALDATATotalrevenues.Netincome..........,....EarningsforcommonstockEarningspercommonshare(1).Cashdividendsdeclaredpercommonshare(1)(2)Totalassets.Long-termdebtPreferredstock.Atorforthc'DvelvcMonthPeriodsEndedMarch31,199919961996(DollnrxinNilpono,ExceptforPerSharcAmounts)$4,610.5$4,518.2$4,244.6451.2409.3390.6399.1356.8.337.72.722.462.381.78.1.78'.7814,343.55,181.6.702.1(1)EachshareofBrooklynUnioncommonstockwillbeexchangedforoneshareofcommonstockoftheHoldingCompanyandeachshareofLILCOcommonstockwillbeexchangedfor0.803ofashareofcommonstockoftheHoldingCompanyinaccordancewiththeCombination.ThesepershareamountsarecalculatedforeachshareofcommonstockoftheHoldingCompanythatwouldhavebeenoutstandinghadtheCombinationbeenconsummatedatthebeginningofeachperiodpresented.(2)BrooklynUnionandLILCOexpectto'continuetheirrespectivecurrentdividendpoliciesuntilthecompletionoftheCombination.Itisanticipatedthattheinitial"annualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.o13 ComparativePerCommonShareInformation-BrooklynUnion/LILCOCombinationwithLIPATransaction.ThefollowingtablesummarizesthepercommonshareinformationforBrooklynUnionandLILCOonaproformaconsolidated,equivalentandhistoricalbasis.ComparativePerShareInformationUnauditedHoldingCompanyProFormaConsolidated(2)(3)EarningspercommonsharepCashdividendsdeclaredpercommonshare,,BookvaluepercommonshareAtorforthe12MonthsEndedMarch31,1997(unaudited)'$1.09.1.7824.14UnauditedLILCOasAdjusted(1)(3)EarningspercommonshareCashdividendsdeclaredpercommonshare..Bookvaluepercommonshare$.41.3320.86LILCOPerShareEquivalents(5)EarningspercommonshareCashdividendsdeclaredpercommonshareBookvaluepercommonshare$.961.5721.24LILCO-HistoricalFinancialInformationEarningspercommonshare............$2.24Cashdividendsdeclaredpercommonshare1.78Bookvaluepercommonshare21.07BrooklynUnion-HistoricalFinancialInformation(4)(5)Earningspercommonshare'$2.58Cashdividendsdeclaredpercommonshare...1.44Bookvaluepercommonshare......,......20.00(1)LILCO'sbalancesheetandresultsofoperationsasofandforthetwelvemonthperiodendedMarch31,1997havebeenadjustedtoreflecttheproposedtransactionwithLIPA.(2)LILCO'sbalancesheetandresultsofoperationsasofandforthetwelvemonthperiodendedMarch31,1997,havebeenadjustedtoreflecttheLIPATransactionandtheCombination.(3)ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.ToarriveatLILCOasadjustedproformacashdividendsdeclaredpercommonshare,LILCO'shistoricalpayoutratioforthe12monthperiodendedMarch31,1997,wasappliedtotheLILCOasadjustedearningspercommonshare.(4)IncludesgainsonthesaleofsubsidiarystockandaCanadianplantof$33.5millionor$0.68pershare,aftertaxes,offsetbyasubsidiaryreorganizationchargeof$7.8millionor$0.16pershare,aftertaxes.(5)LILCOPerShareEquivalentsare0.880ofUnauditedProFormaConsolidatedpershareequivalents,whileBrooklynUnionpershareequivalentsarethesameashistorical.12 SelectedUnauditedProFormaConsolidatedCondensedFinancialInformation-BrooklynUnion/LILCOCombinationwithLIPATransaction.Thefollowingunauditedproforma.consolidatedfinancialinformationreflectsadjustmentstothehistoricalfinancialstatementsofLILCOtogiveeffecttotheproposeddistributionoftheTransferredAssets(asdefinedbelow)toawholly-ownedsubsidiaryoftheHoldingCompanyandsubsequentsaleoftheremainingLILCOcommonstocktoasubsidiaryofLIPA.Theproformastatementshavebeenfurtheradjustedtogiveeffecttothe'roposedCombinationwithBrooklynUnion.TheunauditedproformaconsolidatedcondensedbalancesheetatMarch31,1997giveseffecttotheproposedtransactionwithLIPAandthe.CombinationasiftheyhadoccurredatMarch31,1997.Theunauditedproformaconsolidatedcondensedstatementofincomeforthetwelvemonthperiodended.March31,1997giveseffecttotheproposedtransactionwithLIPAandtheCombinationasiftheyhadoccurredatApril1,1996.ThesestatementsarepreparedonthebasisofaccountingfortheCombinationunderthepurchasemethodofaccountingandarebasedontheassumptionssetforthinthenotesthereto.Wehavepresentedbelowtheselectedunauditedproformaconsolidated'condensedfinancialinformation,reflectingtheproposedtransactionwithLIPA("LILCOasadjusted")andalsoreflectingthistransactionwiththeCombination("HoldingCompany").YoushouldnotrelyontheunauditedproformainformationasbeingindicativeofthehistoricalresultsthatwewouldhavehadorthefutureresultsthatwewillexperienceaftertheproposedtransactionwithLIPAortheCombination.See"UnauditedProFormaConsolidatedCondensedFinancialInformation"onpage51.1'iSELECTEDUNAUDITEDPROFORMAFINANCIALDATAAtorforthe'&reiveMonthPeriodEndedMarch31,1997TotalrevenuesNetincome.Earningsforcommonstock.......................Earningspercommonshare(1)Cashdividendsdeclaredpercommonshare(l)(2)(3).Totalassets.Long-termdebt.PreferredstocknLILCOHoldingasadjusted"Company(DollarsinMillionsExceptforPerShareAmounts)$1,629.0=$3,101.884.9,206.049.0,170.1.41,1.09.331.785,1.14.4,7,916.2,922.2,1,646.8438.0,438.0(1)EachshareofBrooklynUnioncommonstockwill,beexchangedforoneshareofcommonstockoftheHoldingCompanyandeachshareofLILCOcommonstockwillbeexchangedfor0.880ofashareofcommonstockoftheHoldingCompanyintheCombination.ThesepershareamountsarecalculatedforeachshareofcommonstockoftheHoldingCompanythatwouldhavebeenoutstandinghadthebindingshareexchangesbeenconsummatedasofthedateandfortheperiodreferredtoabove.(2)ToarriveatLILCOasadjustedproformacashdividendsdeclaredpercommonshare,LILCO'shistoricalpayoutratioforthe12monthperiodendedMarch31,1997,wasappliedtotheLILCO'sadjustedearningspercommonshare.(3)BrooklynUnionandLILCOexpecttocontinuetheirrespectivecurrentdividendpoliciesuntilthecompletionoftheCombination.ItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare.11 SUMMARYOFSELECTEDHISTORICALANDUNAUDITEDPROFORMACOMBINED/CONSOLIDATEDCONDENSEDFINANCIALINFORMATIONBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION(PurchaseandPoolingMethodsofAccounting)IISelectedHistoricalFinancialInformationWeareprovidingthefollowingfinancialinformationtoaidyouinyouranalysisofthefinancialaspectsoftheCombinationa'ndtheLIPATransaction.WederivedthisinformationfromunauditedfinancialstatementsofBrooklynUnionandLILCOforthe12monthperiodendedMarch31,1997,andtheauditedfinancialstatementsofBrooklynUnionandLILCOfrom1992through1996.Theinformationisonlyasummaryandyoushouldreaditinconjunctionwiththehistoricalfinancialstatements(andrelatednotes)containedinourannualreportsandtheotherinformationthatwehavefiledwiththeSEC.See"WhereYouCan,FindMoreInformation"onpage'10.BROOKLYNUNION-HISTORICALFINANCIALINFORMATION4Atorforthe12monthsAtorfortheYearEndedSeptember30,19971996'199519941993'992(unaudited)(DollarsInMillions,ExceptforPerShareAmounts)Totalrevenues$1,472.8$1,432.0$1,216.3$1,338.6$1,205.5$',074.9Earningsforcommonstock.......128.5(1)122.6(1)91.587.076.257.8Earningspercommonshare.......2.58(1)2.48(1)1.901.851.731.35Cashdividendsdeclaredpercommonshare................-1,441.421.391.351.32"1.29Bookvaluepercommonshare....20.0018.1716.9416.2715.5514.56Totalassets.2,493,82,289.6~2,116.92,029.11,897.81,748.0Long-termdebt.................724.6712.0,720.6701.4689.3.682.0(1)IncludesgainsonthesaleofsubsidiarystockandaCanadianplantof$33.5million,or$0.68pershare,aftertaxes,offsetbyasubsidiaryreorganizationchargeof$7.8million,or$0.16pershare,aftertaxes.LILCO-HISTORICALFINANCIALINFORMATIONTotalrevenues...Earningsforcommonstock.....Earningspercommonshare.....Caskdividendsdeclaredpercommonshare.....,........Bookvaluepercommonshare..TotalassetsLong-termdebtAtorforthe12monthsendedMarch31,1997(unaudited)$3,137.7270.32.241.7821.07,11,849.74,457.0AtorfortheYearEndedDecember31,1996199519941993(DollarsInMillions,ExceptforPcrShareAmounts)$3,150.7$3,075.1$-3,067.3.$2,881.0$2,621.8264.2250.7248.8.240.5238.02.202.102.152.152.141.781.781.781.761.7220.8920.5020.2119.8819.5812,209.712,527.612,479.3,12,453.89,853.14,456.84,706.65,145.4',870.34,741.010 Union/LILCOAgreementatanytimebeforeor'afteritsadoptionbytheshareholdersofthecommonstockofBrooklynUnionandLILCO.Noamendmentadoptedaftershareholderapproval,however,maymateriallyandadverselyaffecttherightsofsuchshareholders.Atanytimepriortoclosing,whetherbeforeorafterapprovalbytheshareholdersofBrooklynUnionorLILCO,theBrooklynUnion/LILCOAgreementmaybeterminatedbymutualconsentoftheBoardsofDirectorsofBrooklynUnionandLILCOandun-dercertainothercircumstances.Dependinguponthereasonforsuchtermination,substantialfeesmaybedueandpayablebyBrooklynUnionorLILCO.Similarly,atanytimepriortoclosing,whetherbeforeorafterapprovalbytheshareholdersofLILCO,theLIPAAgreementmaybeterminatedbymutualconsentoftheBoardofDirectorsofLILCOandtheBoardofTrusteesofLIPAandundercertainothercircumstances.PursuanttotheBrooklynUnion/LILCOAgreement,LILCOmaynotterminatetheLIPAAgreementwithouttheconsentofBrooklynUnion.ComparativeShareholderRights(Seepage85)WhentheCombinationiscompleted,holdersofBrooklynUnioncommonstockandLILCOcommonstockwillbecomeholdersofthecommonstockoftheHoldingCompany,andtheirrightswillbegov-ernedbytheHoldingCompany'scertificateofincor-porationandby-laws(theformsofwhichareat-tachedasAnnexesGandH).Certaindifferencesbe-tweentherightsofholdersofthecommonstockoftheHoldingCompanyandthoseofholdersofBrooklynUnionandLILCOcommonstockaresum-marizedonpages85-87andpages102-103,respec-tively.RegulationoftheHoldingCompany,BrooklynUnionandLILCO(Seepage47)FollowingtheCombinationandtheLIPATrans-action,theHoldingCompany,astheparentcompanyofBrooklynUnionandthesubsidiarieswhoreceivedfromLILCOtheassetsdescribedabove,willnotbedirectlysubjecttoregulationbythePublicServiceCommissionoftheStateofNewYorkortheFederalEnergyRegulatoryCommission.However,itsutilitysubsidiarieswillberegulatedbythevariousregula-toryagenciesthatcurrentlyregulateBrooklynUnionandLILCO'sgasandelectricgeneratingoperations..,WhentheCombinationoccurs,theHoldingCompany~willbecomea,"publicutilityholdingcompany"asdefinedinthePublicUtilityHoldingCompanyActof1935,andwillfileanexemptionstatementwiththeSecuritiesandExchangeCommissiontoexemptitandeachofitssubsidiariesfrommostoftheprovi-sionsofthatAct.Currently,neitherBrooklynUnion"norLILCOissubjecttothatAct.AccountingTreatment(Seepage40)TheaccountingfortheCombinationwillbedependentonwhethertheLIPATransactionwillbecompleted.IftheLIPATransactioniscompleted,theCombinationwillbeaccountedforusingthepurchasemethodofaccounting.IftheLIPATransactionisnotcompleted,theCombinationisexpectedtobeaccountedforasapoolingofinterests.Asapoolingofinterests,wewilltreatourcompaniesasiftheyhadalwaysbeencombinedforaccountingandfinancialreportingpuiposes.ForafurtherdiscussionofaccountingconsiderationabouttheLIPATransactions,see"AccountingTreatment."StatutoryAppraisalRights(Seepage41)EligibleholdersofsharesofBrooklynUnionandLILCOcommonstock'whodonotvotefortheCom-bination,or(inthecaseofholdersofLILCOCom-monStock)theLIPATransaction,asappropriate,andwhotimelydissentandfollowtheproceduresinSec-tion623oftheNewYorkBusinessCorporationLawwillthenhavecertainrightsasaresultofthesetrans-actionstodemandpaymentincashforthe"fairval-ue"oftheirrespectiveBrooklynUnionandLILCOcommonshares.Failuretotakeanyrequiredactiononatimelybasismayresult.inthelossofthoserights.Theamountobtainableuponavalidexerciseofthoserightsissubjecttodeterminationbyjudicialproceed-ingand,asaresult,cannotbeestimatedatthistime.LILCOpreferredshareholdersentitledtovoteontheLIPATransactionsarealsoentitledtostatutoryap-praisalrights.BrooklynUnionpreferredstockwillberedeemedpriortoconsummationoftheCombination;and,therefore,holdersofsuchshareswillnotbeenti-tledtoappraisalrights.
BrooklynUnionshareholdersarewelcometocallGeorgeson&"CompanyInc.,whichisassistingBrooklynUnioninsolicitationofproxies,at1-800-'23-2064.LILCOshareholdersarewelcometocallD.F.King,&Co.,Inc.,whichis.assistingLILCOinsolicitationofproxies,at1-800-207-3155.SUMMARYOFOTHERSELECTEDINFORMATIONRegulatoryApprovals(Seepage47)TheapprovalsofthePublicServiceCommis-sion'ftheStateofNewYorkundertheNewYorkPublicServiceLaw,theSecuritiesandExchangeCommissionunderthePublicUtilityHoldingCom-panyActof1935,theFederalEnergyRegulatoryCommissionundertheFederalPowerAct,theNu-clearRegulatoryCommissionundertheAtomicEn-ergyActof1954,aswellas,theexpirationorearlier"tepninationoftheapplicablewaitingperiodundertheHart-Scott-RodinoAntitrust,,ImprovementsActof1976arerequiredinordertocompletetheCombina-tionand,withtheexceptionoftheapprovalofthePublicServiceCommission,theLIPATransaction.Inaddition,theLIPATransactionalsorequiresap-provaloftheNewYorkStatePublicAuthoritiesControlBoard.AsofthedateofthisJointProxyStatement/Prospectus,noneoftherequiredregulatoryapprovalshasbeenobtained.kOpinionsofFinancialAdvisors(Seepages27and91)IndecidingtoapprovetheBrooklynUnion/LILCOAgreement,theBoardsofDirectorsofBrooklynUnionandLILCOconsideredtheopinionsoftheirrespectivefinancialadvisorsastothefairnessoftheshareexchangeratiofromafinancialpointofview.Inaddition,indecidingtoapprovetheLIPATransaction,theBoardofDirectorsofLILCOalsoconsideredaseparateopinionfromitsfinancialadvi-sorastothefairnessofthe.LIPATransactionfromafinancialpointofview.TheBoardofDirectorsofBrooklynUnionhasreceivedanopinionfromitsfi-nancialadvisor,MerrillLynch,Pierce,Fenner&SmithIncorporated,datedasofthedateofthisJointProxyStatement/Prospectus,totheeffectthattheBrooklynUnionRatiowasfair,fromafinancialpointofview,totheholdersofBrooklynUnionCommonStock,andLILCOreceivedopinionsfromitsfinan-cialadvisor,,Dillon,Read&Co.;,Inc.,thattheshareexchangeratiosandtheLIPATransactionwerefair,fromafinancialpointofview,toLILCOsharehold-ers.Theopinionsofthefinancialadvisorsareat-tachedasannexestothis"JointProxyStatement/Prospectus.VPeencourageyoutoread"theopinionsthoroughly.InterestsofOjficersandDirectorsintheCombination(Seepages32,87and100)TheofficersanddirectorsofBrooklynUnionandLILCOmayhaveinterestsinthetransactionthataredi('ferentfrom,orinadditionto,yours.Forexam-ple,pursuanttoemploymentagreementsandsever-anceplans,theCombination(and,withrespecttoLILCO,theLIPATransaction)willresultinachangeincontrolofbothBrooklynUnionandLILCO,enti-tlingofficersofthecompaniestoreceiveseverancebenefitsundercertaincircumstances.Asoftherecorddate,dinpctorsandofficersofBrooklynUnion,LILCOandtheiraffiliatesasagroupownedlessthan1%oftheissuedandoutstand-ingsharesofcommonstockoftheirrespectivecom-panies.ConditionstotheCombination(Seepage74)andLIPATransaction(Seepage81)CompletionoftheCombinatiqndependsonthesatisfactionofcertainconditions,includingbutnotlimitedto:(a)approvalofBrooklynUnion'sandLILCO'scommonshareholders;and(b)allrequiredapprovalsofregulatoryandgovernmentalagencies.Inaddition,thecompletionoftheLIPATransactionisconditioneduponLIPA'sabilitytoobtainthenec-essaryfinancingandapprovaloftheLILCOpreferredstockholdersentitledtovotethereon.ConsummationoftheCombinationisnotconditionedupontheconsummationoftheLIPATransaction,andconsumma-tionoftheLIPATransactionisnotconditioneduponconsummationoftheCombination.AmehhdkthehhtorTerminationoftheBrooklynUnion/LILCOAgreement(Seepage75)andLIPAAgreement(Seepage84)TheBoardsofDirectorsofBrooklynUnionandLILCOmayamendanyofthetermsoftheBrooklyn 28.WILLTHEPREFERREDSTOCKORBONDSOF'BROOKLYNUNIONBEEXCHA'NGED?BrooklynUnion'spreferredstockwillberedeemedpriorto,,theconsummationoftheKeySpanShareExchangeandtheCombination.TherightsofbondholdersofBrooklynUnionwillnot.changeandwillcontinuetobeobligationsofBrooklynUnion.ttlt29.WILL"fHEPREFERREDSTOCKORBONDSOFLILCOBEEXCHANGED?InconnectionwiththeLIPATransaction,LILCO'sPreferredStock7.95%,SeriesAAwillbeexchangedforaSeriesAAPreferredStockoftheHoldingCompanyhavingsubstantiallyidenticalterms,assetforthinAnnexD.EachissuedandoutstandingshareofLILCO'spreferredstockthatissubjecttooptionalredemptionatorbeforetheclosingoftheLIPATransactionwillbecalledforredemptionnolaterthanthedateofthisclosing.LILCOpreferredstockthatis'otsubjecttothisoptionalredemption(otherthanSeriesAA)willbeacquiredbyLIPAforcashasaresultoftheLIPATransaction.Inaddition,afterLILCOhasreceivedalltherequiredconsents,theHoldingCompanywillassumeLILCO'sDebentures,7.30%dueJuly15,1999,and8.20%dueMarch15,2023.ThebalanceofLILCO'sdebtsecuritieswillbecomeobligationsofLIPAafteritacquiresthecommonstock'fLILCOthroughtheLIPATransaction.l30.HOWWILLMYPARTICIPATIONINBROOKLYNUNION'SORLILCO'SDIVIDENDREINVESTMENTORSTOCKPURCHASEPLANSBEAFFECTED?AllsharesofBrooklynUnioncommonstockandLIECOcommonstockheldunderthecompanies'espectivedividendreinvestmentandstockpurchaseplanswillautomaticallybeexchangedforsharesofthecommonstockoftheHoldingCompanywhentheCombinationand/ortheLIPATransactionarecompleted.TheHoldingCompanywillestablishsimilarplansaftercompletionoftheCombination.31.WHATIFIWANTTORECEIVETHEFAIRMARKETVALUEOFMYCURRENTSTOCKINCASH?Ifyoufollowtherequiredprocedure,youwillhavetherighttoseekanappraisalandpaymentofthefairmarketvalueofyourBrooklynUnionorLILCOshares.Yourstockwouldbeappraisedina'ewYorkStateCourtproceeding.AsaBrooklynUriionshareholderyoumust:a.FileawrittenobjectiontotheBrooklynUnion/LILCOAgreementbeforetheproxyvote(eitherpriortoorattheshareholdersmeeting);ANDb.NotvoteinfavoroftheBrooklynUnion/LILCOAgreement.AsaLILCOshareholderyoumust:a.FileawrittenobjectiontotheBrooklynUnion/LILCOAgreementand/or"theLIPATransactionbeforetheproxyvote(eitherpriorf'oorattheshareholdersmeeting);ANDb.Not'voteinfavoroftheBrooklyn;Union/LILCOAgreementand/ortheLIPATransaction.32.ARETHEREOTHERLEGALREQUIREMENTSIMUSTME<ETTOOBTAINANAPPRAISALANDPAYMENTINCASHFORMYSHARES?Yes.ThesearedescribedinthisJointProxyStatement/Prospectusonpages41-43.TheprovisionsofNewYorklawthatgovernappraisalrightsarealsoattachedasAnnexI.Ifyouareentitledtoandwishtoseekanappraisalofyourshares,youshouldreadandfollowthoseprovisionscarefully.Youshouldbeaware,too,thatanappraisalmayresultinacashpaymentforyoursharesthatishigherorlowerthanthevalueoftheHoldingCompanysharesthatwouldbeissuedtoyouinconnectionwiththe'BrooklynUnion/LILCOAgreementor,ifapplicable,theLIPATransaction.33,WHOCANICALLIFIHAVEANYADDITIONALQUESTIONS?Twospecialtoll-freetelephonenumbershavebeenestablishedforyou.
24.SHOULDISENDINMYSTOCK'CERTIFICATESNOW?No.YoushouldcontinuetoholdyourcertificatesforBrooklynUnionorLILCOstockuntiltheCombinationandL'IPATransactionbecomeeffective.Atthattime,youwillreceivewritteninstructionsforexchangingyourold'BrooklynUnionorLILCOstockcertificatesfornewcertificatesrepresentingtheappropriatenumberofsharesofcommonstockofthenewHoldingCompany.LILCOshareholderswillalsoreceivecashpaymentinplaceofanyfractionofashareofthecommonstockoftheHoldingCompany.25.WHEREWILLMYSHARESOFCOMMONSTOCKOFTHEHOLDINGCOMPANYBETRADED?Weexpectthat'thecommonstockoftheHoldingCompanywillbelistedandtradedontheNewYorkStockExchange.AftertheCombinationandtheLIPATransactionarecompleted,BrooklynUnionandLILC6commonstockownedbytheHoldingCompanywillnolongerbetradedandwillbedelisted.26.WHEREAREBROOKLYNUNIONANDLILCOSTOCKCURRENTLYTRADED?BrooklynUnioncommonstockiscurrentlylistedandprincipallytradedontheNewYorkStockExchange,whileLILCOcommonstockiscurrentlylistedandprincipallytradedontheNewYorkandPacificStockExchanges.OnDecember27,1996,thelastfulltradingdayontheNewYorkStockExchangepriortothepublic'nnouncementoftheBrooklynUnion/LILCOAgreement,BrooklynUnioncommonstockclosedat$31.125pershareandLILCOcommonstockclosedat$19.375pershare.ThereportedclosingpricesofBrooklynUnionandLILCOcommonstockonJune23,1997were$28Nand$23',respectively.27.WHATARETHEFEDERALINCOMETAXCONSEQUENCESOFTHEPROPOSEDTRANSACTIONSFORSHAREHOLDERS?Thetaxconsequencestotheshareholdersgenerallydependonwhichtransactionsoccur'andtheorderinwhichtheyoccur.,TheVariousalternativesandtheirtaxconsequencesarediscussedundertheheading",TheBrooklynUnion/LILCOCombinationFederalIncomeTaxConsiderations."Ingeneral,LILCO"commonandpreferredstockshareholdersshouldrecognizegain(subjecttopossibledeferral-seepages33-36)orlossonthereceiptofcashand/orHoldingCompanycommonorpreferred'stock,asappropriate,bysuchshareholdersortheExchangeAgentas.contemplatedherein.However,iftheLIPATransactionisterminatedpriortotheCombination,LILCOshareholdersgenerallyshouldnotrecognizegainorlossforfederalincometaxpurposesintheCombination.WehavestructuredtheCombinationandLIPATransactionsothat,withcertainexceptions,BrooklynUnionshareholderswill'notrecognizeanygainorlossforfederalincometaxpurposes.lcInaddition,gainorlossshouldberecognized(subjecttopossibledeferral-seepages33-36)byashareholderwhohassoughtappraisalrightsorbyaLILCOshareholderwhoreceivescashinlieuofafractionalshare(regardlessofwhethertheLIPATransactionisterminatedbeforetheCombination).Moreover,taxmaybepayableoncertainamountsdeemedreceivedbyBrooklynUnionshareholderswhenBrooklynUnionpayscertaintransfertaxes.TheCombinationisconditioneduponthereceiptbyBrooklynUnionofanopinionfromitstaxcounselthatsuchtransactionwillqualifyasareorganizationwhichistax-freetoitsshareholders.AlthoughtheBrooklynUnion/LILCOAgreementallowsBrooklynUniontowaivetheconditionofreceivingsuchtaxopinion,itdoesnotintendtodoso.Ifthisconditioniswaived,wewillnotifyBrooklynUnionsharehold-ersofthewaiveranditsimplicationandresolicittheirapproval.TheLIPATransactionisconditioneduponthereceiptbythepartiesofcerfainrulingsfrointheInternalRevenueService.Forafurtherdiscussionofthe.Federalincometaxconsequencesoftheproposedtransactions,seethediscussion.undertheheading"TheBrooklynUnion/LILCOCombination-FederalIncomeTaxConsiderations."
16.WHATPROPOSALSARELILCOSHAREHOLDERSVOTINGON?LILCO'shareholdersarebeingaskedtoapp'rovetwosignificantproposals:a.TheBrooklynUnion/LILCOAgreement(describedinQuestion3)inwhichLILCOwouldbecomeawholly-ownedsubsidiaryoftheHoldingCompany.b.TheacquisitionofcertainLILCOassetsbyLIPAthroughastocksaleofLILCO(describedinQuestions10-13).Inaddition,aspartofLILCO'sAnnualMeeting;LILCOshareholdersarebeingaskedtoapprovecertainotherproposalsidentifiedintheNoticeofAnnualMeetingasdescribedinAnnexJoftheproxymaterialsdeliv'eredtoLILCOshareholders.17.WHATSHAREHOLDERVOTEISREQUIREDTOAPPROVETHEBROOKLYNUNION/LILCOCOMBINATION?Theholdersofatleasttwo-thirdsoftheoutstandingsharesofeachofBrooklynUnionandLILCOcommonstockmustvoteinfavoroftheBrooklynUnion/LILCOAgreement.18.WHATSHAREHOLDERVOTEISREQUIREDTOAPPROVETHELIPATRANSACTION?TheLIPATransactionmustbeapprovedbythevoteof:1)theholdersofatleasttwo-thirdsoftheoutstandingsharesofLILCOcommonstockandpreferredstockentitledtovotethereon,votingtogetherasasingleclass;2)amajorityoftheoutstandingsharesofLILCOpreferredstockentitledtovotethereon,votingtogetherasaseparateclass;3)amajorityoftheoutstandingsharesofLILCOcommonstockvotingseparatelyasaclass;and4)theholdersofamajorityoftheoutstandingsharesofeachseriesofLILCOpreferredstockentitledtovotethereon,ineachcasevotingseparatelyasaclass.19.WHATWILLHAPPENTOMYREDEE<MABLE<LILCOPREFERREDSTOCK?PriortotheclosingoftheLIPATransaction,LILCOwillredeemallredeemablepreferredstock.Thesesharesofredeemedpreferredstockwillnotbeoutstandingatthetimeoftheclosingand,therefore,willnotbeentitledtovoteontheLIPATransaction.20.WHOISENTITLEDTOVOTE?HoldersofrecordofBrooklyn"UnionandLILCOcommonstockandeligibleLILCOpreferredstockonJune26,1997,theRecordDate,areentitledtovoteattheapplicableshareholdersmeeting.AsofJune23,1997,50,364,212sharesofBrooklynUnioncommonstockwereoutstanding,121,184,527sharesofLILCOcommonstockwereoutstandingand21,674,000sharesofeligibleLILCOpreferredstockwereoutstanding.21.WHENAREALLOFTHESETRANSACTIONSEXPECTEDTOBECOMPLETED?Weareworkingtocompleteallaspectsofthetransactionsasquicklyaspossible.Wecurrentlyexpectthesetransactionstobecompletedinthesecondhalfof1998.TheCombinationbyitstermscannotbeconsummatedearlierthanApril1,1998.22.WHATDOINEEDTODONOW?Justsignandmailyourproxycardintheenclosedreturnenvelopeassoonaspossible.That'ayyoursharescanberepresentedattheBrooklynUnionorLILCOshareholdersmeeting.FailuretoreturnaproxycardivillhavethesameegectasavoteagainsttheBrooklynUnion/LILCOAgreement,theLIPATransaction(intliecaseofLILCOshareholders)andtheKeySpanshareexchange(inthecaseofBrooklynUnionshareholders).23.CANICHANGEMYVOTEAFTERIHAVEMAILEDINMYSIGNEDPROXYCARD?Yes,youmaychangeyourvoteatany,timebeforethevotetakesplaceattheapplicableshareholdersmeetirig.Youcanattendtheapplicableshareholdersmeeting,andvoteinpersontodoso.Or,ifyou,areaBrooklynUnionshareholder,youcancompleteanewproxycardorsendawrittennoticestatingyouwouldliketorevokeyourproxy.Theseshouldbesentto:Georgeson&CompanyInc.,IVallStreetStation.P.O.Box1102,NewYork,NewYork10269-0667.Or,ifyouareaLILCOshareholder,youcansendanewproxycardorwrittennoticetorevokeyourproxytoTheCorporationTrustCompany,P.O.Box631,Wilmington,Delaware19899.
12.WHATWILLTHENEWHOLDINGCOMPANYLOOKLIKEAFTERTHECOMBINATIONANDTHELIPATRANSACTION?ThenewHoldingCompanywillbecomprisedofBrooklynUnion,consistingasitdoesatpresentofitsregulatednaturalgasassetsandoperationsandotherunregulatedsubsidiaries,andanewsubsidiary(orsubsidiaries)formedtoreceiveLILCO'snon-nuclearelectricgeneratingassetsandoperations,naturalgasassetsandoperationsandcommonplant.Inaddition,thenewHoldingCompanywillenterintoserviceagreementswithLIPAto,amongotherthings,manageandoperatetheelectricsystemonLongIsland.IftheLIPATransactiondoesnotoccur,BrooklynUnion,andLILCOwouldbecomesubsidiariesoftheHoldingCompanypursuanttotheCombination(seeQuestionsIthrough8).Insuchevent,LILCO,orothersubsidiariesoftheHoldingCompany,wouldowntheassetscontemplatedtobeacquiredbyLIPApursuanttotheLIPATransactionandwouldserveLongIsland'selectriccustomers.LIPATransactionandbelievesitsadoptionisinthebestinterestsofLILCOanditsshareholders.Accordingly,theLILCOBoardrecommendsthatitsshareholdersvote"FOR"theapprovaloftheLIPATransaction.BrooklynUnionhasconsentedtotheLIPATransactionanditsBoardofDirectorsbelievesthatitsconsummation,togetherwiththeCombination,isinthebestinterests.ofBrooklynUnionanditsshareholders.14.WHOMUSTAPPROVETHELIPATRANSACTION?InadditiontotheapprovalsbytheLILCOBoardofDirectorsandtheconsentoftheBrooklynUnionBoard,allofwhichhavealreadybeenobtained,theLIPATransactionmustbeapprovedby:LILCOshareholders(commonandcertainpreferred)PublicAuthoritiesControlBoardInternalRevenue,ServiceNuclearRegulatoryCommissionFederalEnergyRegulatoryCommission13.WHATARETHEBENEFITSOFTHELIPATRANSACTION?TheLIPATransactionshouldbenefitbothcustomersandcommonshareholdersofbothLILCOandBrooklynUnion.TheLIPATransactionseekstotakeadvantageofLIPA'stax-exemptstatus'ndexemptionfrompaymentof'federalincometax,tolowerratesforelectricratepayersonLongIsland.AsaresultofLIPA'sabilitytoissuelow-cost,tax-exemptmunicipalbondsandtheeliminationoffederalincometaxes,alongwiththeBrooklyn-Union/LILCOcombinationandthesettlementofvarioustaxcertiorariproceedings,itisanticipatedthatLongIslandelectriccustomerswillrealizeanaverageelectricratereductionof17percent.Fromtheshareholders'erspective,theLIPATransactionwillprovidetheHoldingCompanywiththeresourcesneededtosuccessfullycompeteintheemergingenergymarketplaceandstrengthentheHoldingCompany'sfinancialposition.Fortheseandotherreasons,theBoardofDirectorsofLILCOhasunanimouslyapprovedtheInaddition,theLIPAAgreementissubjecttoratificationbytheLIPABoardofTrustees.15.WHATPROPOSALSAREBROOKLYNUNIONSHAREHOLDERSVOTINGON?BrooklynUnionshareholdersarebeingaskedtoapprovetwosignificantproposals:a.TheBrooklynUnion/LILCOAgreement(describedinQuestion3)inwhichBrooklynUnionwouldbecomeawholly-ownedsubsidiaryoftheHoldingCompany.b.ArestructuringofBrooklynUnionwhichwouldtakeplacebeforetheCombination.BrooklynUnionwouldberestructuredintoaholdingcompanystructurethroughashareexchangewithKeySpanEnergyCorporation,asdescribedinAnnexIoftheproxymaterialsdeliveredtoBrooklynUnionshareholders.Ifthistransactionisapprovedandconsummated,KeySpanwouldbecometheparentcompanyofBrooklynUnionandKeySpanwouldbesubstitutedforBrooklynUnionintheBrooklynUnion/LILCOAgreement.
commonshare,subjecttoapprovalanddeclarationbytheHoldingCompanyBoardofDirectors.IftheCombinationiscompleted,but.theLIPATransactionisnot,itisanticipatedthattheiriitialannualdividendratepaidtoHoldingCompanycommonshareholderswillbe$1.78percommonshare,subjecttoapprovalanddeclarationbytheHoldingCompanyBoardofDirectors.The'paymentofdividendsbytheHoldingCompanyinthefuturewilldepend'nbusinessconditions,resultsofoperations",financialconditions,andotherfactors.9.WHATISTHELONG.ISLANDPOWERAUTHORITY?TheLongIslandPowerAuthority(orLIPA)isacorporatemunicipalinstrumentalityandpoliticalsubdivisionoftheStateofNe)vYork.Itisalsotheonlystateagencyinthecountrypermittedtoissuetax-exemptbondsoutsideofthefederallimitsplaceduponeachstate.LIPAisauthorizedundertheLongIslandPowerAuthorityActtoacquirealloranypartofLILCO'ssecuritiesorassetsinorderto,amongotherthings,reduceelectricratespaidbyLILCOcustomers.LIPAwillcreateLIPAAcquisitionCorp.,aNewYorkcorporationandwholly-ownedsubsidiaryofLIPA,inordertocarryouttheLIPATransactiondiscussedbelow.l0.WHATISTHE"LIPATRANSACTION"?LILCOhasenteredintoanagreemcntwithLIPAinwhichLIPA'illacquireLILCO'selectrictransmissionanddistributionsystem,itselectricregulatoryassetsandits18percentinterestintheNineMilePoint2Iiuclearpowerplant,anucleargeneratingfacilitylocatedinOswego,NewYork.II.'HOWWILLTHELIPATRANSACTIONTAKEPLACE?AfterbecomingasubsidiaryoftheHoldingCompany,LILCOwilldistributetotheHoldingCompany,oroneormoreofitssubsidiaries,allofitsnaturalgasassetsandoperations,non-nuclearelectricgeneratingassetsandoperations,andcommonplant.TheLIPATransactionistheacquisitionoftheremainingLILCOassetslistedinQuestion10forapproximately$2.5billionincashandtheassumption,redemPtionorrefinancingbyLIPAofapproximately$339millioninpreferredstock'ndapproximately$3.6billionindebtattributabletoLILCO.TheHoldingCompanywillendupwithapproximately$1.7billionjticashandwillhavehconsiderablystrongerbalancesheet.ThechartbefowshowsthebasicproposedstructureoftheHoldingCompanyaftertheBrooklynUnion/LILCOAgreementandLIPATransactiontakeeffect.Shareholders(PreviouslyofBrooklynUnionandLILCO)BLHoldingCorp.BrooklynUnionSubsidiariesConsistingof:5I)NewYorkCityNaturalGasAssetsandOperations;and2)UmegulatedOperationsNewSubsidiariesConsistingof:I)Non-NuclearElectricGeneratingAssetsandOperationsformerlyownedbyLILCO;2)LongIshndNaturalGasAssetsandOperationsformerlyownedbyLILCO;and3)LIPAServiceAgreements Itheirrespectivecompanies,and'shareholders.Accordingly;'ehchBoard,.recoinmends'hatitsrespectiveshareholdersvote"FOR"theadoptionoftheBrooklynUnion/LILCOAgreement.3.HOWWILLTHESETWOCOMPANIESCOMBINE?BrooklynUnion'ndLILCOwillcombinepursuanttoabindingshare.exchangeandmergeragreementandbecomewholly-ownedsubsidiaries'ofoneholdingcompany,tobenamedatalaterdate.For"purposesofthisdocument,thenewcombinedcompanywillbereferredtoasBLHoldingCorp.ormore,simply,as,the"HoldingCompany."Thetransactionbetween'ourcompanieswillbereferredtoasthe"Combination."'i(Under,thisagreement,sharesofeachoftheindividualcompanieswillbeexchangedfororconvertedintosharesofthenewHoldingCompany,andeachofthecompanies'ommonshareholderswillbecomeshareholdersofthenewHoldingCompany.4."HOWMANY'HARESWILLBROOKLYN..UNIONSHAREHOLDERSRECEIVE?BrooklynUnion"shareholderswillreceiveoneshareofthecommonstockoftheHolding'Companyforeachshare.ofBrooklynUnioncommonstocktheyown;Forpurposesofthisdocument,theratioatwhichsharesofBrooklynUnioncommonstockwillbeexchangedforsharesofcommonstockoftheHoldingCompanywillbereferred,toasthe"BrooklynUnionRatio."5.HOWMANYSHARESWILLLILCOSHAREHOLDERSRECEIVE?ThenumberofsharesLILCOsh'areholdersreceiveswillbeasfollows(pleaseseeQuestions9-12):a.LILCOshareholderswillreceive0.803ofashareof'commonstockoftheHolding'CompanyforeachshareofLILCOcommonstocktheyown.Inthisscenano,BrooklynUnionandLILCOshareholderswouldOwn34percentand66percent,respectively,'ofthesharesof,thecommonstockoftheHoldingCompany.b."IftheLIPATransactionis-alsocompleted(asdescribedinQuestions10-13);LILCOshareholderswilltheninsteadreceive0.880"ofa.shareofcommon;stockoftheHoldingCompanyforeachshareofLILCO"commonstockthey>>own.Sha'reholdersforBrooklynUnionaridLILCOwouldthenown32percentand68percent,respectively,ofthe'ha'resofthecommonstockoftheHoldingCo'mpany.nIftlieLIPATransactioniscompletedbuttheCombinationis,not,LILCO,,alonewouldrestructureintoaholdingcompany.Inthiscase,LILCOshareholderswouldownallofthestockofthenewHoldingCompany.6.WHOWILLMANA.'GETHENEWHOLDINGCOMPANY?Uponcompletionofthe...Combination,Dr.WilliamJ.Catacosinos,currently,ChairmanandChiefExecutiveOfficerofLILCO,willbecomeChairmanandChiefExecutiveOfficeroftheHoldingCompany..Mr.RobertB.Catell,currentlyChairmanandChiefExecutiveOfficerofBrooklynUnion,willbecomePresidentandChiefOperatingOfficeroftheHoldingCompany.,OneyearaftertheclosingoftheCombination,Mr.CatellwillsucceedDr.CatacosinosasChiefExecutiveOfficer,withDr.CafacosinosremainingasChairman.J7.''WHO'WILLSERVEONTHEBOARDOFDIRECTORSOFTHE<HOL'DINGCOMPANY?''.TheBoardofDirectorsoftheHoldingCompanywillconsist,of15members:sixtobedesignatedbytheBrooklynUnionBoard;sixtobedesignatedbytheLILCOBoard;andthreeadditionalpersonsjointlyselectedbyacommittee,consistingoftwocurrentBrooklynUnion'directorsandtwocurrentL'IL'COdirectors.8.WHATWILLTHEDIVIDENDRATEBE,ONTHEHOLDINGCOMPANY'SCOMMONSTOCK?Itisanticipatedthattheinitialannualizeddividendrate'aidtoHoldingCompany.commonshareholdersaftercompletionoftheCombinationandthetransactionwith'LIPAwillbe$L78per QUESTIONS&ANSWERSONTHEBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION;SUMMARYOFJOINTPROXYSTATEMENT/PROSPECTUSThissummaryhighlightsselectedinfonnationjomthisdocumentandmaynotcontainalloftlteinfor7nationthatisimportanttoyou.TounderstandtheBrooklynUnion/LILCOCombinationandtheLIPATransactionftdlyandforamorecompletedescriptionofthelegaltermsoftikeBrooklynUnion/LILCOCombinationandtheLIPATransaction,youshouldreadcarefullythisentiredocumentandthedocumentswe/ravereferredyouto.See"WhereYouCanFindMoreInformation"(Page110).InadditiontotheBrooklynUnion/LILCOCombination,BrooklynUnionshareliolderswillalsobeaskedtoapproveaproposaltoformanewlloldingcompanypendingtheconsummationoftheBrooklynUnion/LILCOAgreement.LILCOSlurrelrolderswillalsobeaskedtoapprovecertainotlrerproposalsincori'rtectionwithLlLCO'sAruiualMeeting.ShareholdersthereforeslrouldahoreadcarefullyAntre'ofthisdocunrent.1.WHOARETHETWOCOMPANIESTHATWILLCOMBINE?TheBrooklynUnionGasCompany-alsoreferredtointhisdocumentas"BrooklynUnion"-hasapproximately3,000employees,distributesnaturalgasintheNewYorkCityBoroughsofBrooklynandStatenIslandandintwo-thirdsoftheBoroughofQueens,andservestheenergyneedsofapproximately1.1millioncustomers.BrooklynUnion'sserviceterritorycoversapproximately187squaremiles,withapopulationofapproximately4millionpeople.,LBrooklynUnionanditssubsidiaries,haveenergy-relatedinvestmentsingasandoilexplorationandproductionintheUnitedStatesandCanada,aswellasinenergyservjcesjnthe,UnitedStatesincludingcogeneration,gaspipelinetransportationandstorage,marketingandotherrelatedservices.BrooklynUnion'sprincipalexecutiveofficeislocatedatOneMetroTechCenter,'Brooklyn,NY11201-3851,anditsgeneraltelephonenumberis(718)403-2000.LongIslandLightingCompany-alsoreferredtointhisdocumentas"LILCO"-hasapproximately5,400employeesandprovideselectricandgasservicetomorethan1millioncustomersinNassauandSuffolkCountiesandontheRockawayPeninsulainQueensCounty.LILCO'sserviceterritorycovers1,230squaremileswithapopulationofapproximately2.7millionpeople..LILCO'sprincipalexecutiveofficeislocatedat175EastOldCountryRoad,Hicksville,NY11801,anditsgeneraltelephonenumberis(516)755-6650.2,WHYHAVETHESETWOCOMPANIESDECIDEDTOCOMBINE?ThecombinationofBrooklynUnionandLILCOwillprovideimportantbenefitsforthetwocompanies,'ortheircustomers,employeesandshareholders.Shareholderswillbenefitfromtheupsidepotentialassociatedwiththefollowingfactors:~CombiningBrooklynUnionandLILCOisexpectedtoresultinoperatingefficienciesofapproximately$1billionover10years,whichwillbeusedtoprovideratereductionstocustomers.~Together,thetwocompanieswillhelpspurincreasedregionalbusinessgrowthbyprovidingenergyandrelatedservicesatlowerprices.~Ourcombinedcompanywillhaveanenhancedabilitytoprovideitsbroadercustomerbasewithcompetitiveenergyproductsandserviceswellintothefuture.~BrooklynUnionandLILCOtogetherintend-tomarket,tradeanddeliverenergyproductsandservicesonalargescaletomajormarketareas.~Currentandprospectivecustomerswillbenefitfromtheopportunitytodealwithanenergyservicescompanythatcanofferone-stopshoppingforproviding-andmanaging-theirenergyneeds.Fortheseandotherreasons,theBoardsofDirectorsofbothBrooklynUnionandLILCOhaveunanimouslyapprovedthecombinationofthetwocompanies,believingittobeinthebestinterestsof TABLEOFCONTENTS't1~~~~~~t~'QUESTIONS8cANSWERSONTHEBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION;SUMMARYOFJOINTPROXYSTATEMENT/PROSPECTUS..........JOINTPROXYSTATEMENT/PROSPECIUS.........THEBROOKLYNUNION/LILCOCOMBINATION....BackgroundoftheCombination....................CommonReasonsfortheCombination...'..........RecommendationoftheBrooklynUnionBoardofDirectors.OpinionofBrooklynUnion'sFinancialAdvisor.......PotentialConflictsofInterestsofCertainPersonsintheCombinationandthcLIPATransaction............CertainArrangementsRegardingtheDirectorsandManagementoftheHoldingCompanyFollowingtheCombinationandtheLIPATransaction..'..........FederalIncomeTaxConsiderations.................AccountingTreatmentStockExchangeListingoftheHoldingCompanyStock.........................................FederalSecuritiesLawConsequences...............AppraisalRightsMEETINGS,VOTINGANDPROXIES...............TheBrooklynUnionMeetingREGULATORYMATIERS............'...StateApprovalsandRelatedMatters................PublicUtilityHoldingCompanyActof1935.........FederalPowerAct.AntitmstConsiderationsAtomicEnergyAct~PublicAuthoritiesControlBoardApproval...........GeneralUNAUDITEDPROFORMACONSOLIDATEDCONDENSEDFINANCIALINFORMATION(PURCHASE)UNAUDITEDPROFORMACOMBINEDCONDENSEDFINANCIALINFORMATION(POOLING)THECOMPANYFOLLOWINGTHECOMBINATIONANDTHELIPATRANSACIMN..................ManagementoftheHoldingCompany...............CommonStockDividends.DESCRIPTIONOFHOLDINGCOMPANYCAPITALSTOCKGeneralHoldingCompanyPreferredStock.......,..........HoldingCompanyCommonStock..................CertainAnti-TakeoverProvisions...................THEAMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEANDMERGER.......TheCombination.EffectsoftheCombination.RepresentationsandWarrantics.....................CertainCovenants.Indemnification.EmploymentandWorkforceMatters................StockandBenefitPlans.NoSolicitationofTransactions.....................AdditionalAgreements.ConditionstoEachParty'sObligationtoEffecttheCombination.Termination.TerminationFees.PageI172020252527323233404041414444474747484849494951576363636363646467676769707171727373747577Page797979808181848585858687878989909091100107108109109109110112AnnexA-AnncxB-AnnexC-AnnexDAnnexEAnnexFAnnexGAnnexHAnnexIAnnexJAnnexK-AnnexL-AmendedandRestatedAgreementandPlanofExchangeandMergerAmendedandRestatedLILCOStockOptionAgreementAmendedandRestatedBrooklynUnionStockOptionAgrecmcntAgreementandPlanofMergerOpinionofMemllLynch,Pierce,Fenner4SmithIncorporatedOpinionsofDillon,Read4,Co.Inc.FormofCcitificatcofIncorporationoftheHoldingCompanyFormofBy-lawsoftheHoldingCompanySection623andSection910oftheNewYorkBusinessCorporationLawBrooklynUnionProposal2:HoldingCompanyandAdoptionofthcKeySpanExchangeAgreementAmendedandRestatedAgreementandPlanofExchangebctwcenBrooklynUnionandKeySpanRestatedCertificateofIncorporationandBy-lawsofKeySpanTHESTOCKOPTIONAGREEMENTS...............GeneralCertainRepurchasesRestrictionsonTransferTHELIPATRANSACTIONAgrecmcntandPlanofMerger..........,..........OtherBasicAgrecmcntsSELECfEDINFORMATIONCONCERNINGBROOKLYNUNIONBusinessofBrooklynUnionComparisonofShareholders'ights.................ComparisonoftheHoldingCompany'sCertificateofIncorporationandBy-LawstoBrooklynUnion'sCertificateofIncorporationandBy-Laws..........Anti-TakeoverStatutesPotentialConflictsofInterestofCertainPersonsintheCombinationandtheLIPATransaction............SecurityOwnershipofCertainBeneficialOwnersandManagementCertainBusinessRelationshipsBetweenBrooklynUnionandLILCO.SELECfEDINFORMATIONCONCERNINGLILCO...RecommendationoftheLILCOBoard...............OpinionofLILCO'sFinancialAdvisor..............PotentialConflictsofInterestofCertainPersonsintheCombinationandtheLIPATransaction............ComparisonoftheHoldingCompany'sCertiTicateofIncorporationandBy-LawstoLILCO'sCertificateofIncorporationandBy-Laws.......................TheLILCOMccting.BusinessofLILCO.SecurityOwnershipofCertainBeneficialOwnersandManagement.CAUTIONARYSTATEMENTCONCERNINGFORWARD-LOOKINGSTATEMENTS...,.........LEGALMATfERS,.~EXPERTS...FUTURESHAREHOLDERPROPOSALS.............WHEREYOUCANFINDMOREINFORMATION....LISTOFDEFINEDTERMS........................
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Directionstothe,OperaHouse,BROOKLYNACADEMYOFMVSIC30LafayetteAvenueBrooklyn,NewYork11217~t<<o<<"Cyasvw0KAlSCOHUE+C/gg4OyCH~vre"irriSly4p)~+utByCar:FromManhattanviatheManhattanB'shlandPhce,proceedonebl~~kFromManhattanviatheBrokroo'lynBndgetContinueotebridgeandmakethefirstlepossiblewhichisTillarySt.CStreetandturnrightontoFlatbushAvenue.rect.ontinueonTillFromQueensLoQ,LongIslandandConnecticut:TakteLongIslandExpresswatotheFromStatenIsland:CrosstheVeB'dtothBooklerooynQueensExpressway.ExitatTillaryStreet,exit29.Followe'owexitontoTillaryStreet,ocandturnleftontoFlatbushAvenue.FromNewJersey:UsetheieHollandTunnelandeet,whichleadsdirectlyeeastonanalStreetse,,anattanBridge,ContinuestrathebridgeontoFlatbushAvenue'.BySubwaytTheBrooklynAcademofMu'oMusiciswithinthree~2,3,4,5,D,Q:AtlanticAvenueB,N,M,R:PacificStreet~G:FultonStreetLIRR:FlatbushAvenueParking:AllBrooklynAcademyofMusicarkin1patrolledcontinuouslydurinthewo OneMetroTechCenterBrooMyn,NewYork11201.3850NOTICEOFSPECIALMEETINGOFSHAREHOLDERSToBeHeldAugust7,1997
 
==DearShareholder:==
IampleasedtogiveyounoticeofandtocordiallyinviteyoutoattendtheSpecialMeetingofShareholdersofTheBrooklynUnionGasCompany,whichwillbeheld:Thursday,August7,19973:00p.m.OperaHouseBrooklynAcademyofMusic30LafayetteAvenueBrooklyn,NewYork11217AtourSpecialMeeting,commonshareholderswillconsiderandtakeactionon:1.OurproposaltocombinewithLongIslandLightingCompany("LILCO")byadoptingtheAmendedandRestated,AgreementandPlanofExchangeandMergerwithLILCO,acopyofwhichisattachedasAnnexAtotheaccompanyingJointProxyStatement/Prospectus,pursuanttowhichBrooklynUnionandLILCOwillbecomesubsidiariesofanewholding'ompany(the"HoldingCompany"),holdersofBrooklynUnionCommonStockwillreceiveoneshare"ofHoldingCompanyCommonStockforeachshareofBrooklynUnionorKeySpanCommonStocktheyownandholdersofLILCOCommonStockwillreceive0.803(or0.880ifthetransactionscontemplatedbytheAgreementandPlanofMergerbyandamongtheHoldingCompany,LILCOandtheLongIslandPowerAuthorityareconsummated)ofashareofHoldingCompanyCommonStockforeachshareofLILCOCommon'Stocktheyown;and2.OurholdingcompanyproposalbyadoptingtheAmendedandRestatedAgreementandPlanofExchangewithKeySpanEnergyCorporation("KeySpan"),acopyofwhichisattachedasAnnexKtotheaccompanyingJointProxyStatement/Prospectus,pursuanttowhichKeySpanwillbecometheparentholdingcompanyofBrooklynUnionandtheholdersofsharesofBrooklynUnionCommonStockwillbecomeholdersofsharesofCommonStockofKeySpan.TheLILCOcombinationproposalandtheKeySpanholdingcompanyproposalarenotconditionedononeanother.Ifapprovedbyourcommonshareholders,weexpectourKeySpanholdingcompanyproposalwillbeconsummatedpriortoourproposedcombinationwithLILCO.Themeetingroomwillbeopenforadmissionat2:00p.m.Isuggestyouarriveearly,sinceseatingislimitedandisonafirst-comebasis.HoldersofrecordofouroutstandingcommonstockandpreferredstockonJune26,1997,therecorddate,areentitledtoreceivenoticeofourSpecialMeeting.Onlyholdersofrecord"ofsharesofourcommonstockontherecorddateareentitledtovoteatthemeeting.Ifyoursharesareheldthroughabankorbrokeragefirmandyouplantoattendthemeeting,pleaserequestaletterorsomeotherevidenceofownershipfromyourbankorfirmaswellasproperauthorizationifyouwishtovoteyoursharesinperson.IftheAmendedandRestatedAgreementandPlanofExchangeandMergerwithLILCOisadoptedbyourcommonshareholdersandtheLILCOcombinationoccurs,aholderofrecordofourcommonstockontherecord,datewhodissentsanddoesnotvotefortheproposalisentitledtoreceivepaymentincashifthatholderfollowstheproceduresprovidedinSections623and910oftheNewYorkBusinessCorporationLaw,attachedasAnnexItotheaccompanyingJointProxyStatement/Prospectus.Similarly,iftheAmendedandRestatedAgreementandPlanofExchangewithKeySpanisadoptedbyourcommonshareholdersandtheKeySpanrestructuringoccurs,aholderofrecordofourcommonstockonthe'recorddatewhodissentsanddoesnotvotefortheproposalisentitledtoreceivecashifthatholderfollowstheproceduresreferencedabove.'une27,1997ByOrderoftheBoardofDirectors,ROBERTR.WIECZOREKVicePresident,SecretaryandTreasurer ofBrooklynUnionandLILCOwouldhold32%and68%,respectively,ofthesharesofthecommonstockofthenewholdingcompanyiftheLIPAtransactionwasconsummated;and34%and66%,respectively,iftheLIPAtransactionwasnotconsummated.YourBoardofDirectorsbelievesthatthetransactionwithLILCOisinthebestinterestsofBrooklynUnionanditsshareholdersandhasunanimouslyadoptedit.YourBoardunanimouslyrecommendsthatshareholdersvotaFORtheLILCObusinesscombinationproposal.TlieKeySpanProposalAsecondpurposeoftheSpecialMcctingistovoteontheKeySpanproposal,whichisindependentoftheLILCObusinesscombinationproposalandisnotconditionedonitortheLIPAtransactionbeingconsummated.BecauseitisnotpossibletopredictwhentheLILCOtransactionwillbecompleted,proceedingnowwithKeySpanwillgiveBrooklynUniontheadditionalflexibilitytomakeinvestmentsinunregulatedbusinesseswhetherornottheLILCOtransactionisconsummated.HavingKeySpanasourparentcompanywillallowustomakefulluseofourexperienceinservingthetotalenergyneedsofcustomerswithinandbeyondtheboundariesofourtraditionalutilityservicearea.Wewillbeabletotakeadvantageofbusinessopportunitiesinamoretimelyfashion,competemoreaggressivelyandinvestinamorebroadlydefinedenergybusiness,withoutalengthyregulatoryapprovalprocessforeachinitiativetakentoexpandourbusiness.BrooklynUnionwillbethemostsignificantsubsidiaryofKeySpan.Certainofourexistingnon-utilitybusinessesandanynewlycreatednon-utilitybusinesseswillbeoperatedasseparatesubsidiariesofKeySpan.Iwillbethechairman,presidentandchiefexecutiveofficeraswellasadirectorofKeySpan,andIwillcontinueaschairman,chiefexecutiveofficerandadirectorofBrooklynUnion.AsaresultoftheKeySpantransaction,BrooklynUnioncommonstockcertificateswillautomaticallybecomecertificatesrepresentingKeySpancommonstock,andyouwillautomaticallybecomeashareholderofKeySpanandceasetobeashareholderofBrooklynUnion.YourproportionateownershipinterestwillnotcliangeintheKeySpanrestructuring.IntermsofourproposedbusinesscombinationwithLILCO,KeySpanwillbesubstitutedforBrooklynUnionandthetransactionwillproceedwithKeySpan,ifbothproposalsareapprovedattheSpecialMeeting.YourBoardofDirectorsunanimouslyrecommendsthatsharcltoldcrsvoteFORtheKeySpanproposal.Wcappreciateyoursupportintheseimportanttransactions.WeareveryenthusiasticabouttheKeySpanrestructuringandthecombinationwithLILCO,andareconfidentthatyourcompanywillgrowandprosperinacompetitivemarketplace.Sincerely,+'l~RODEttTB.CATELt.ChairmanandChiefExecaliveOfficerNeithertheSECnoranystatesccuriticsregulatorhasapprovedthecommonstockofKcySpanEnergyCorporationorBLHoldingCorp.tobcissuedunderthisJointProxyStatement/Prospectus,ordeterminedifthisJointProxyStatcmcnt/Prospectusisaccurateoradctluatc.Anyrepresentationtothecontraryisncriminaloffense.JointProxyStatement/ProspectusdatedJune27,1997,andfirstmailedtoshareholdersonoraboutJune30,1997.
hq===BrooklynOneMetroTechCenterBrooktyn,NewYork11201-3850
 
==DearShareholder:==
IampleasedtoinviteyoutotheSpecialMeetingofShareholderstobeheldonAugust7,1997,atwhichyouwillbeaskedtoapprovetheproposedcombinationofBrooklynUnionandLongIslandLightingCompany("LILCO").YouwillalsobeaskedtoapprovetheformationofKeySpanEnergyCorporation("KeySpan")asanewholdingcompanyforBrooklynUnion,whichwillprovideyourcompanywithgreaterfinancialandorganizationalflexibilityandenableustocompetemoreeffectivelypendingtheconsummationoftheproposedcombinationwithLILCO.YourBoardofDirectorsunanimouslyrecommendsapprovalofbothproposalsandurgesyoutosign,dateandreturntheenclosedproxytoday.TheLILCOBusinessConibinationProposalTheproposedtransactionwithLILCOoffersBrooklynUnionshareholderstheopportunitytoparticipateintheupsidepotentialoftheconvergenceofthegasandelectriccompanieswithintheenergyindustry.'OurcombinationwithLILCOwillopenuptheLongIslandmarketforBrooklynUnion.Thismarketisparticularlyattractivebecausethereisanextremelylowpenetrationofgasasapercentofthetotalenergyusageofthatregion.Webelievethatthecombinationwillresultinsynergysavingsofapproxiinately$1billionovertenyears.Thiswillleadtomorecompetitiveratesandhelpspurincreasedregionalbusinessgrowthandenhancedenergy-relatedproductsandservices.Yourcompanywillbenefitfromtheattractivegrowthprospectsresultingfromaccesstomorcthanonemillioncustomersinanareawithapopulationof2.7millionpeople.OnJunc26,1997,definitiveagreementswereenteredintoforthe,purchasebytheLongIslandPowerAuthority("LIPA")ofLILCO'selectricJune27,1997transmissionanddistributionsystem,substantiallyallofitselectricregulatoryassetsanditsshareoftheNineMilePoint2nuclearpowerplantforapproximately$2.5billionincashandtheassumptionorrefinancingbyLIPAofapproximately$3.6billioninLILCOdebtandapproximately$339millioninpreferredstock.ConsuinmationoftheLIPAtransactionisnotaconditiontotheclosingofourtransactionwithLILCO;however,asdescribedbelow,theclosingoftheLIPAtransactionwillresultinachangeintheexchangeratioinourtransactionwithLILCO.AsmorefullydescribedintheaccompanyingJointProxyStatement/Prospectus,BrooklynUnionand-LILCOwouldbecombinedinatransactionwhichwouldbetax-freetotheBrooklynUnionshareholdersandwouldbecomesubsidiariesofanewholdingcompany.Uponconsummationoftheproposedtransaction,youwillreceiveoneshareofthecommonstockofthenewholdingcompanyforeachshareofBrooklynUnionorKeySpancommonstockyouown.IfthetransactionwithLIPAdescribedaboveisconsummated,LILCOshareholderswouldreceive0.880ofashareofcommonstockofthenewholdingcompanyforeachshareofLILCOcommonstocktheyown;iftheLIPAtransactionisnotconsummated,LILCOshareholderswouldreceive0.803ofashareofcommonstockofthenewholdingcompanyforeachoftheirsharesofLILCOcommonstock.MerrillLynch,Pierce,Fenner&SmithIncorporated,yourcompany'sfinancialadvisor,hasdelivereditsopiniontotheBrooklynUnionBoardofDirectorstotheeffectthat,undereitherscenario,theratioatwhichsharesofBrooklynUnioncommonstockwillbeexchangedforsharesofcommonstockofthenewholdingcompanyisfairtotheBrooklynUnioncommonshareholdersfromafinancialpointofview.BasedonthecurrentcapitalizationofBrooklynUnionandLILCO,theholdersofthecommonshares PRINTEDONRECYCLEDPAPER Item7requirestheapprovalofamajorityoftheoutstandingsharesofLILCOCommonStockentitledtovote.ThefollowingresolutionwillbeproposedforapprovalbyholdersoftheLILCOCommonStockasItem7:RESOLVED,thattheCertificateofIncorporationofLILCOshallbeamendedtoincreasethetotalamountofauthorizedLILCOCommonStockto'160,000,000commonshares.TheBoardofDirectorsofLILCOrecommendsavoteFORapprovaltoadoptthisamendment.ADDITIONALINFORMATIONOutstandingVotingStockOnJune23,1997,therewere121,184,527sliaresofLILCOCommonStock,1,366,840sharesofLILCOPreferredStock,$100parvalue,and22,658,000sharesofLILCOPreferredStock,$25parvalue,issuedandoutstanding.HoldersofsliaresofLILCOPreferredStockSeriesL,B,D,E,F,H,IandNNarenotentitledtovoteonanyofthematterstobeconsideredatthisLILCOMeeting.HoldersofsharesofLILCOPreferredStock,SeriesAA,CC,GG,QQandUUmayvoteontheproposaltoadopttheLIPAAgreement.HoldersofsharesofLILCOCommonStockmayvoteonallmatters.Thestockbookswillnotbeclosed.
Employeeswillbe'abletopurchaseshareseitherbyapayrolldeductionmethodorbymakinglumpsumpaymentsorboth.Iftheemployeeelectstousethepayrolldeductionmethod,suchemployeewillbecreditedwithanallowanceof'8of1%permonthoftheamountsdeductedfromhispay,whichwillbeappliedtoreducethepurchasepriceofthesharesundertheESPP.TheamountssodeductedfrompayrollmaybeusedimmediatelybyLILCOforgeneralcorporatepurposes.Inanysix-monthpurchaseperiod,thetotalpaymentsbyanemployeetopurchaseshares,includingbothpayrolldeductionsandlumpsumpayments,cannotexceed20%oftheirsalaryat,thebeginningof,suchperiod.Moreover,thefairmarketvalueofsharespurchasedbyanemployeeundertheESPP,duringanycalendaryear,cannotexceed$25,000.Theimaximumnumberofsharesanemployeemaypurchaseinapurchaseperiodis600shares,subjecttothe$25,000limitdiscussedabove.TheBoardofDirectorswillcontinuetohavetheright,withoutshareholderapproval,tosuspend,terminateormodifytheESPP.ShareholderapprovalisrequiredtoextendthetermoftheESPP,decreasethepurchasepriceoftheshares,toincreasethemaximumnumberofshareswhichmaybeboughtbyanemployee,toincreasethetotalnumber,ofsharesavailableundertheESPP,ortonarrowthedefinitionofemployeeseligibletoparticipate.TheproceedsreceivedfromsalesundertheESPPwill:beusedforconstructionandothercorporatepurposes.OnJune23,1997,theclosingpriceofLILCOCommonStockasreportedontheNYSElistingofcompositetransactionwas$23Npershare.Item6requirestheapprovalofamajorityoftheouts'tandingsharesofLILCOCommonStockentitledtovote.ThefollowingresolutionwillbeproposedforapprovalbyholdersofLILCOCommonStockasItem6:RESOLVED,thattheLILCOEmployeeStockPurchasePlan("ESPP")shallbeamendedtoextendthedateas'ofwhichtheESPPwillterminatefromAugust31,1997,toAugust31,2007.The,BoardofDirectorsofLILCOrecommendsavoteFORapprovaltoauthorizetheextensionoftheESPP.ITEM7-APPROVALOFPROPOSEDAMENDMENTTOTHECERTIFICATEOFINCORPORATIONTheLILCOCertificateofIncorporationprovidesforauthorizedcommonstockof150,000,000shares.AtDecember31,1996,therewere120,784,277commonsharesoutstandingandatotalof28,388,658commonsharesreservedforissuance,includingatotalof23,981,964commonsharesreservedforissuanceinconnectionwiththeLILCOStockOptionAgreemententeredintowithBrooklynUnion.Accordingly,atDecember31,1996,therewereonly827,065commonsharesavailableforissuanceplus3,485commonsharesheldintreasury.TheBoardofDirectorsbelievesthatthislimitationonthenumberofcommonsharesthatLILCOmayissueisundulyrestrictiveandthaitheCertificateofIncorporationshouldbeamendedtoincreasetheauthorizedLILCOcommonstockto160,000,000shares.Adoptionofthisamendmentwouldincreasethetotalofauthorizedbutunissuedcommonsharesfrom827,065to10,827,065asof,December31,1996,comparedtothetotalofauthorizedbutunissuedcommonsharesofmorethan24,000,000thatwereavailableforissuanceimmediatelybeforetheLILCOStockOptionAgreementwasenteredintoonDecember29,1996.LILCOdoesnothaveanycurrentplansorcommitmentstoissueLILCOCommonStockinconnectionwithanyfinancingoracquisition(otherthanpursuanttotheLILCOStockOptionAgreement)andLIL'CO'sabilitytoissueadditionalsharesofLILCOCommonStockisrestrictedpursuanttotheBrooklynUnion/LILCOAgreement.
thetwocorporateobjectives.Thebalance,ofeachaward,whichcanbe-zero,25or50percentofthetargetincentivepayment,isthensubjectivelydeterminedbasedoneachindividual'scontributiontowardhelpingLILCOachieveitsobjectives.Followingthecloseofeachcalendaryear,theCommitteewillreviewthetargetsorthresholdsachievedandconsidereachindividualofficer'scontribution,inordertodetermineanyincentiveawardstobepaidundertheAnnualStockIncentivePlan.UnderSection162(m)oftheInternalRevenuecodeof1986,asamendedandtheapplicableregulations,paymentsmadepursuanttoa"qualifiedperformance-basedcompensationplan"willbeexemptfrom.therestrictionscontainedinSection162(m)'regardingLILCO'sabilitytoobtainadedu'ctionforcompensationpaidtocertainhigh-rankingofficersofLILCO.Inordertoqualifyasaplanof"qualifiedperformance-based"'ompensation"theAnnualStockIncentivePlananditsmaterialtermsmust,amongotherrequirements,beapprovedbyamajorityoftheoutstandingsharesofLILCOCommonStockentitledtovote.TheBoardofDirectors'fLILCOrecommendsavoteFORapprovaloftheAnnualStockIncentivePlan.ITEM6-APPROVALOFLILCOEMPLOYEESTOCKPURCHASEPLAN,In1957,LILCOshareholdersfirstauthorizedtheissuanceofsharesofLILCOCommonStockpursuanttoanEmployeeStockPurchasePlan("ESPP").Overtheyears,theESPPhasbeenamendedseveraltimesto,amongotherthings,providefortheissuanceofadditionalsharesofLILCOCommonStockandtoextendtheperiodforthepurchaseofsuchshares.Currently,theshareholdershiveauthorizedLILCOtoissueLILCOCommonStockpursuanttotheESPPuntilAugust31,1997,and1,678,208sharesremainavailableforpurchasebyemployeespursuanttosuchauthorization.Todate,approximately2.5millionshareshavebeenpurchasedbyemployeeswhohaveinvestedapproximately$39millioninLILCOthroughtheESPP.TheBoardofDirectorsbelievesthattheESPPhasbeensuccessfulinachievingitspurposeandthatitisinthebestinterestsofLILCOtocontinuetoencourageownershipoftheLILCOCommonStockbyitsemployeesandtodosobyprovidingasystematicmethodofemployeeacquisition.Accordingly,theBoardofDirectorsrequeststhatLILCOshareholdersauthorizeanextensionoftheESPPandtheissuanceofupto1,678,208sharesofcommonstockthroughAugust31,2007.However,theShareExchangeAgreementcontemplatesthattheESPPwillbeterminateduponclosingofthetransactionscontemplatedtherein.ItiscurrentlyanticipatedthatfollowingconsummationoftheBindingShareExchanges,theCompanywillimplementanemployeestockplantoreplaceboththeLILCOESPPandBrooklyn(InionsDiscountStockPurchasePlanforEmployees.Thetermsandconditionsofsuchplanhavenotyetbeendetermined.ThepurchasepricetoemployeesundertheESPPwillcontinuetobe95%oftheaverageofthehighestandlowestpricespaidfortheLILCOCommonStock'hsreportedintheintheNYSElistingofcompositetransactions,withthedischuntedpricethenro'undeduptothenextcentonthepricingday(whichisthelasttradingdayontheNYSE)ofeachpurchaseperiod(currentlyMarchIthroughAugust31andSeptember1ofagivenyearthroughthelastdayofFebruaryinthefollowingyear).AllLILCOemployeesareeligibletoparticipateintheESPPexcept(i)employeeswhowillnothavebeenonLILCOspayrollfor12monthsasofthepricingdayinapurchaseperiod;(ii)employeeswho,attheendofapurchaseperiod,havebeenonmilitaryleaveoroncontinuoussickleaveformorethan90daysifnotentitledtolateremploymentbyLILCO;(ii)part-timeemployees;and(iv)Directorswhoarenotalsofull-timeemployeesofLILCO.
ITEM4-APPOINTMENTOFINDEPENDENTAUDITORSErnst&YoungLLP,395North'erviceRoad,Melville,NewYork,auditedLILCO's1996financialstatements.AuditrelatedservicesperformedbyErnst&,YoungLLPfor1996consistedprincipallyoftheauditofthefinancialstatementsofLILCO,thereviewoftheunaudi)edquarterlyfinancialstatementsandassistanceandconsultationinconnectionwithfilingswiththeSECandtheFERCandinconnectionwiththeissuanceofallsecurities.yArepresentativeofErnst&,YoungLLPwillbepresentattheLILCOMeeting,shallhavetheopportunitytomakeastatementifheorshedesirestodosoandwillbeavailabletoanswerquestionsbyshareholdersconcerningthefinancialstatementsofLILCO.~TheappointmentofauditorsisapprovedannuallybytheB'oardofDirectorsandissubsequentlysubmittedtotheshareholdersforratification.ThedecisionoftheBoard'ofDirectorsisbasedupontherecommendationoftheAuditCommitteeoftheBoardofDirectors.TheDirectorbiographyportionofthisJointProxyStatement/ProspectusidentifiesthemembersoftheAuditCommittee.Inmakingitsrecommendation,theAuditCommitteereviewstheauditscopeforthecomingyear.ITheBoardofDirectorshas,subjecttoratificationbyholdersoftheoutstandingsharesofLILCO'sCommonStock,appointedErnst&,YoungLLPasindependentauditoisfortheperiodfromJanuary1,1997toMarch31,1998.Ratificationrequiresafavorablevotebyamajorityofthevotes,castatameetingoftheholdersofsharesentitledtovoteontheproposal.Abstentionsandvotesnotcastbybrokersandnomineesarenotincluded.Accordingly,thefollowingresolution,identifiedontheproxycardasIt'em4,willbeproposedforratificationbysuchshareholdersattheLILCOMeeting:RESOLVED,thattheappointmentofErnst&YoungLLPbytheBoardofDirectorsofLongIslandLightingCompanyasindependentauditorstoauditLILCO'sfinancialstatementsfortheperiodfromJanuary1,1997toMarch31,1998andtoperformotherappropriateaccountingservices,isherebyratified.TheBoardofDirectorsofLILCOrecommendsavoteFORtheratificationoftheappointmentbytheBoardofDirectorsofErnst&.YoungLLPasindependentauditorsofLILCOfortheperiodfromJanuary1,1997toMarch31,1998.~<ITE<M5-APPROVAL"OFTHEANNUALSTOCKINCENTIVEPLANInApril1995theBoardofDirectors,upontherecommendationoftheCompensationandManagementAppraisalCommittee,establishedtheAnnualStockIncentivePlanfortheofficergroup,basedonperformanceachievedforeachcalendaryear.TheAnnualStockIncentivePlanwasimplementedtoensurethatLILCO'scompensationprogramremainscompetitivetoattractandretainkeyexecutivetalentand.rewardoutstandingcontributions.Allofficers,includingtheChiefExecutiveOfficer,havebeenselectedasparticipantsintheAnnualStockIncentivePlan,andawardsaretobepaidinsharesofcommonstock,lessapplicabletaxwithholdings,followingthecloseoftheyear.Bymakingawardspayableinstock,officerperformanceis,morecloselyalignedwithshareholder,interests.TheAnnualStockIncentivePlanis,designedtorewardcurrentperformancebyprovidingstockcompensationcomparabletocertaincompetitivemarketbenchmarklevelsforcashincentivesforsimilarpositions,whichwereprovidedbyMercer.TheAnnualStockIncentivePlaniscurrentlybased'onthbachievementoftwoquantifiableobjectives,improvingcashflowandmaintainingorimprovingtencriticalservicegoals.Ifthresholdlevelsarenotachievedforeitherobjective,noincentivewillbepaid.Thetargetincentivepayment-theamountsthatwillbepaidiftpredeterminedperformancelevelsareattainedforallprogramtargets-isdependentupontheexecutive'slevelintheorganization.Seventy-fivepercentofeachindividual'spaymentisbasedonthelevelofachievementof in'terestsofLILCOorforanygleasonafterachangeincontrol.ThetransactionscontemplatedwithBrooklynUnionand/orLIPAwillresultinachangeincontrolundertheContract.TheContractalsoprovidesforvestedContractRetirementBenefits'commencingattheearlierofDr.Catacosinos'etirementordeath,payablemonthlytoDr.Catacosinosandhiswifeasajointandsurvivorannuitywithaminimumguaranteedperiodoftenyears.TheContractRetirementBenefitsinanyyearwillbereducedbymonthlybenefitspayableunderLILCO'sotherretirementplans.Thebenefitwillbebaseduponaformulathatconsidershisageatretirement,hishighestannualsalary,thehighestbonushehasreceivedandtlfelengthofhisservicetoLILCOincludingserviceasaDirector,employeeorconsultant.Thebenefitisalsosubjecttocertainannualcostoflivingadjustments.Assuming,forillustrativepurposes,hisretirementatDecember31,1997,theamountoftheestimatedretirementbenefitpayableundertheContracttoDr.CatacosinosasofJanuary1,1998(assumingcontinuationofhiscurrentsalary)wouldbeapproximately$895,234.LILCOhasestablishedtruststoprovideforpaymentsofitsobligationsundertheContract,thecostsofwhicharebornebyLILCO'sshareholders.Notwithstandingthecreationofthetrusts,LILCOcontinuestobeprimarilyliableforallamountspayabletoDr.Catacosinosandthetrustswill,makesuchpaymentstotheextentthatLILCOdoesnot.TheOfficershavealsoenteredintoinde'mnificationagreementsthataredescribedbelowundertheheading"TransactionswithManagementandOthers."NoDirectororOfficerorassociateofany'irectororOfficerhasanyarrangementwithanypersonwithrespecttoanyfutureemploymentbyLILCOor"itsaffiliatesotherthanthosedescribedherein.raTRANSACTIONSWITHMANAGEMENTANDOTHERSIndenrnificationofDirectorsandOfficers:Formanyyearspriorto1986,statutory.provisionsoftheNYBCLpermittedcorporations,includingLILCO,undercertaincircumstancesinconnectionwithlitigationinwhichitsDirectorsandOfficersweredefendants,toindemnifythemfor,amongotherthings,judgments,amountspaidinsettlemcntandreasonableexpenses.ToreimburseitwhenithasindemnifieditsDirectorsandOfficers,LILCObeganin1970,pursuanttostatutoryauthorization,topurchaseDirectorandOfficer("D&O")liabilityinsuranceineachyear.D&OliabilityinsurancealsoprovidesdirectpaymenttoLILCO'sDirectorsandOfficersundercertaincircumstanceswhenLILCOhasnotpreviouslyprovidedindemnification.LILCOhasD&Oliabilityinsurancewhichithaspu'rchasedfromAssociatedElectric&GasInsuranceServicesLtd.("AEGIS"),EnergyInsuranceMutual("EIM"),ColumbiaCasuafty,SteadfastInsuranceCompany,A.C.E.InsuranceCompanyandXLInsuranceCompany,all'withtheeffectivedateofAugust26,1996.LILCOalsohasliabilityinsuranceeffectiveJuly1,1996purchasedfromAEGISandEIM,whichprovidesfiduciaryliabilitycoverageforLILCO,itsDirectors,OfficersandemployeesforanyallegedbreachoffiduciarydutyunderERISA.Thetotalannualpremiumfor,allthesecoverageswas$1,599,300in1996.TheLILCOBy-lawsprovideforthemandatoryindemnificationofDirectorsandOfficerstotheextentnotexpresslyprohibitedbytheNYBCL.Inaddition,theLILCOBy-lawsauthorizetheBoardofDirectorstograntindemnityrightstoemployeesandotheragentsofLILCO.Suchprovisionsareeffectiveasfoallclaimsforindemnification,whethertheactsoromissions"givingrisetoaclaimforsuchindemnificationoccurredortheexpensesforwhichindemnityissoughtwereincurred,beforeoraftertheprovisionsoftheLILCOBy-lawswereadopted.OneoftheprovisionsoftheLILCOBy-lawsauthorizedtheBoardofDirectorstoenterintoindemnificationagreementswithanyofLILCO'sDirectorsorOfficersextendingrightstoindemnificationandadvancementofexpensestosuchpersontothefullestextentpermittedbyapplicablelaw.LILCOhasenteredintosuchagreements,whicharedescribedundertheheading"CompensationPaidtoDirectors,"witheachofitsDirectorsandOfficers.Pursuanttothetermsofthoseagreementsandtheprov'isionsoftheLILCOBy-laws,LILCOhasalsoestablishedatrusttofundLILCO'sobligationsundertheagreements.FTheLILCOCertificatelimitsthepersonalliabilityofDirectorsforcertainbreachesofdutyinsuchcapacitypursuanttoprovisionsoftheNYBCL.TheLILCOCertificatedoesnotbarlitigationagainstDirectorsbutprovidesthatDirectorsarestillrequiredtodefendthemselvesinlitigationinwhichactsoromissionstoactareallegedforwhichtheymightbeheldliable.Furthermore,theLILCOCertificateprovidesprotectiontoDirectorsonlyanddoesnotaffecttheliabilityofOfficersofLILCOforbreachesofthefiduciarydutiesofcareandloyalty.
1Thefollowingtableshowstheprojectedannualretirementbenefitpayableonastraight-lifeannuitybasispursuanttoLILCO'sRetirementIncomePlantoeachoftheindividualslistedintheSummaryCompensationTableatnormalretirementage.(whichisthelaterofage65orfiveyearsofservice),assumingcontinltationofemploymenttonormalretirementdateattherateofplancompensationduring1996:AnnualCreditedNormal'IRetircmc'ntScndceasRetirement,Benefit(1)of12/31/96DateWilliamJ,Catacosinos$146,64212years11monthsAprilI,1995(2)JamesT.Flynn.$66,11010years3monthsJanuary1,1999LeonardP.Novello.$73,8161year9monthsJanuaryI,2006EdwardJ.Youngling.$135,80528years9monthsAugustI,2009AnthonyNozzolillo..,$132,68324years6monthsSeptember1,2013(I)TheseRetirementIncomePlanbenefitsmaybelimitedatretirementbythemaximumbenefitlimitationunderSection415orthemaximumcompensationlimitationunderSection401(a)(17)oftheInternalRevenueCode.Thebenclitsshownhavebeencalculatedwithoutthelimitations.LILCOhascstablishcdtheRetirementIncomeRestorationPlanofLongIslandLightingCompanytorestorequalifiedplanbenefitswhichhavebeenreducedpursuanttotheCodeorwhichmaynotbeincludibleinthecalculationofbcncfitspursuanttoLILCO'sRetirementIncomePlan.IntheeventthattheretirementbenefitsarereducedbyoperationofcithcrSection415or401(a)(17)oftheInternalRevenueCode,LILCO'sRetirementIncomeRestoptionPlanwouldprovidepaymentofplanformulapension'enefitswhichexcccdthosepayablcundertheCode'smaximumlimitations.For1996themaximumbenefitlimitsctbySection415andapplicabletotheamountsshownabovewas$120,000.For1996themaximumcompensationlimitsetbySection401(a)(17)andapplicabletotheamountsshownabovewas$250,000.'For1997theinaximumbenefitlimitsctbySection415is$125,000andthemaximumcompensationlitnitsetbySection401(a)(17)andtobeutilizedforbenefitsaccruedin1997is$160,000.(2)Dr.Catacosinos'mploymentagrccment,discussedbelow,providesf'rhiscontinuedemploymentbeyondhisnornlalretirementdate,AgreementswithErecu/ives/LILCOhase'nteredintoindividualemploymentagreementswitheachofitsOfficer'stoprovidethemwithemploymentsecurityandtominimizedistractionsresultingfrompersonaluncertaintiesandrisksofachangeincontrolofLILCO.Currently,theprincipalbenefitsundertheseagreements,'payableiftheOfficer'semploymentisterminatedforanyreason(includingvoluntaryresignation)withinthreeyearsofachange.incontrol(asdefinedintheseagreements),includingbyvirtueofanacquisitionofLILCO'sassetsorstock,priortoDecember31,1999,are:(i)severancepayequaltothreeyears'alary;(ii)acceleratedvestingandpaymentofthevalueofsupplementalretirementbenefitsatthetimeofachangeincontrol,whichareenhancedbythreeyearsofservice;and(iii)continuationoflife,medicalanddentalinsuranceforaperiodofthreeyears.ThecostsassociatedwiththesearrangementswillbebornebyLILCO'sshareholders.Notwithstandingthecreationofatrusttosupportpaymentofi'bligations,LILCOisprimarilyliableforthecompensationandretirementbenefitspayabletotheOfficersandthetrustwillmakesuchpaymentsonlytotheextentthatLILCOdoesnot.ThetransactionscontemplatedwithBrooklynUnionand/orLIPAwillresultInachangeincontrol(asdefinedintheseagreements)andentitleeachOfficertothebenefitspayableunderthetermsoftheemploymentagreementsIfsuchOfficer'semploymentisterminatedforanyreason.LILCOhasalsoenteredintoindividualemploymentagreementswithcertainofitsofficers(notincludingDr.CatacosinosandMr.Flynn),effectiveJuly1,1997,pursuant"towhichsuchofficersareemployedforaoneyeartermandareentitledtoreceivearetentionbonusequalto20%ofthegreaterofjobvalueorsalary,iftheyarestillemployedbyLILCOoritsaffiliafesattheendofsuchtermorare'erminatedwithoutcause(asdeterminedbytheChiefExecutiveOfficer)priortotheexpirationofsuchterm.TheseagreementshavebeenenteredintotoinducesuchofficerstocontinuetheiremploymentdespitethesignificantproposedchangestoLILCOdescribedelsewhereinthisJointProxyStatement/Prospectus.UnderthetermsofanemploymentcontractdatedasofJanuary30,1984,asamended(the"Contract"),Dr.'CatacosinoshasagreedtoServeasCEOofLILCOuntilJanuary31,2002.TheContractprovidesforaflve-yearconsultingperiodfollowingtheterminationofhisemployment(otherthan,exceptafterachangeInconfrol,forcause).Hisconsultingcompensationwillbe90%ofhisbaseannualsalaryathisretirementduringthefirsftwoyears,75%ofsuchsalaryduringthethirdandfourthyearsand50%ofsuchsalaryduringthefifthyear.TheContractalsoprovidesforsupplementaldisabilitybenefits.Dr.Catacosinos'mploymentundertheContractmaybetertninatedbyLILCOforcauseorforsuchotherreasonastheBoardofDirectorsmay,ingoodfaith,determinetobeinthebestinterestsofLILCOandbyDr.Catacosinosifhedeterminesittobeinthebest SupplementalDeathandRetirementBenefitsPlatrtOfficersandcertainotherseniormanagementemployeeseligibletoparticipateinLILCO'sSupplementalDeathandRetirementBenefitsPla'n,areprovidedwithdeathbenefits,generallyfundedbylifeinsurance,equaltofivetimestheplancompensation.fortheChairman,CEO,PresidentandCOOandthree,'timestheplancompensationforeachotherOfficer."Plancompensation"isdefinedinthisplanasthehigIiestsalaryincludinganyincentiveearnedpursuanttotheAnnualStockIncentivePlan.Priortoretirement,participantselecteithertoreceivecontinueddeathbenefitcoverageortoreceivemonthlyretirementbenefits,apartiallump-sumdistribution,oracombinationofeach.Foraparticipantwhoretiresonorafterage65andelectsthedeathbenefit,thedeathbenefitcoveragewillbecontinueduptofivetimesplancompensationfortheChairman,CEO,PresidentandCOOanduptothreetimesplancompensationforeachOfficer.Foraparticipantwhoretiresonorafterage65andelectsthemonthlyretirementincomebenefit,theannualretirementbenefitspayableunderthe15-yearcertainoptionwillbe,fortheChairman,CEO,PresidentandCOO,25%of'plancompensationand,foreachotherOfficer,15%ofsuch'Officer'splancompensation,withotheroptionsavailabletomakepaymentonanactuariallyequivalentbasisthroughalifetimeannuity,ajointand,survivorannuityoranincreasingincomeannuity.Retirementbenefitsunderthisplanarenotavailabletoparticipantswhoretirepriortoage60.Aparticipantwillvestupontheearlierofattainmentofage60withtenyearsofserviceoruponattainmentofhisorhernormalretirementdate(i.e.,age65).Ifavested,participantretirespriortoage'65,reducedbenefitsarepayable.'heprojectedvalueoftheannualretiremehtbenefitspayableundertheSupplementalDeathandRetirementBenefitsPlanutilizingthe15-yearcertainretirementincomepaymentelectionforeachoftheindividualslistedintheSummaryCompensationTableatnormalretirementage,65,baseduponcompensationineffectfor1996,areasfollows:Dr.Catacosinos,$196,753;Mr.Flynn,$97,639;Mr.Novello,$41,804;Mr.Youngling,$30,943;andMr.Nozzolillo,$30,251.ThetermsofDr.Catacosinos'mploymentagreement,discussedbelow,provideforhiscontinuedemploymentbeyondnormalretirementage.Inaddition,Dr.Catacosinoshasmadean,assignmentofhisrightstodeathbenefitsandthereforewillnotreceivethemonthlyretirementbenefitsunderthisplan.LILCOrecognizesthecostofthesebenefits,whicharebornebyLILCO'sshareholders,asanexpenseonitsincomestatement'sforeachyear.LILCOhasalsoestablishedatrusttoprovideforpaymentsofitsobligationstotheparticipantsintheSupplementalDeathandRetirementBenefitsPlan.Notwithstandingthecreationofthetrust,LILCOcontinuestobeprimarilyliableforthedeathorretirementbenefitspayabletotheparticipantsandiscurrentlymakingsuchpaymentstosuchretiredparticipants.'IRetirementl>icomePlarr:Generally,allLILCOemployees(exceptcertainleased'ndpart-timeemployees)areeligibleforinclusionintheRetirement,Inc'omePlanuponcompletionofoneyearofemploymentwithLILCO.Aparticipantwill'vestuponcompletionoffiveyearsofservice".Thisplaniscurrentlynoncontributoryandprovidesfixed-dollarpensionbenelits.TheRetirementIncomePlanusesacareeraveragepayformulawhichprovidesacreditforeachyearofparticipationintheretirementplan.ForservicebeforeJanuary1,1992,pensionbenefitsaredeterminedbasedonthegreateroftheaccruedbenefitasofDecember31,1991,orbymultiplyingamovingfive-yearaverageofplancompensation,nottoexceedtheJanuary1,1992salary,byacertainpercentagedeterminedbyye'arsofparticipationintheretirementplanatDecember31,1991.ForserviceafterJanuary1,1992,pensionbenefitsareequalto2%of"plancomperisation"throughage49and2iA%thereafter."Plancompensation"isdefinedinthisplanasthebaserateofpayineffectonJanuary1ofeachyearandmaydifferfromtheamountsreportedundertheheading"Salary"intheSummaryCompensationTable.Anydifferenceisprimarilyattributabletothetimingofannualsalaryincreasesforthenamedexecutiveofficerswhichimpactstheamountpaidtosuchofficerandreportedforagivenyear.
COMPENSATIONPAIDTOEXECUTIVEOFFICERSSummaryCompensa/ionTable:,.Thefollowingtableillustratesthecompensationpaid,byLILCOduringthepastthreeyearstoeachofitsmosthighlycompensatedExecutiveOfficers:AnnualCompensationLongTermCompensationNameandPrincipalPositionYearSalary($)(1)BonusOtherAnnual~RestrictedStock($)(2)Compensation($)Award(s)($)Payouts-Options/LTIPAllOtherSARs(&#xb9;)Payouts($)Compensation($)(3)IviltiamJ.Caiacosinos-CEOJamesT.Flynn-COOandPresidentLeonardP.Novello-ScniorVicePresidentandGeneralCounselEdwardJ.Youngling-SeniorVicePresidentEngineeringandConstruction1996199519941996199519941996199519941996,19951994580,413(4)587,976(4)579,654(4)263,364255,500235,178236,186176,250(5)n/a172,358172,000,169,512153,2030090,5540033,6930034,28500n/a*n/an/an/an/an/an/an/a,n/a018,65315,18412,3045,8003,7252,1161,410883n/a766650591AnthonyNozzolillo1996SeniorVicePresident-1995FinanceandChief1994FinancialOfficeran/a-NotApplicable.170,331169,083157,67831,67200n/an/an/a574487423rotestoSummaryCompensationTable;*(1)LILCOhasinplacea401(k)CapitalAccumulationPlan,whichqualifiesforfavorabletaxtreatmentundertheInternalRevenueCodeof1986,asamended.ThisplanisdesignedtoprovideforsalaryreductioncontributionsbyparticipantsunderSection401(k)oftheInternalRevenueCodeof1986,asamendedthatpermitemployeestodeferaportionoftheircurrentcompensationandthereforeaportionoftheircurrentfederaland,inmostinstances,stateandlocalincometaxes.AlthoughthisplanallowsLILCOtomakematchingcontributionstothesedeferredamounts,nosuchmatchingcontributionshavebeenmadetodate.TheamountsshownforannualsalaryintheSummaryCompensationTableforeachindividualofficerincludeamountsdeferredbythoseindividualsintothisplan.(2)RepresentsthedollarvalueofLILCOCommonStockawardsundertheAnnualStockIncentivePlan,includingapplicabletaxwithholdings.ThenetamountoftheawardswerepaidinsharesofLILCOCommonStockin1996asfollows:Dr.Catacosinos-5,407shares,Mr.Flynn-3,196shares,Mr.Novello-1,189shares,Mr.Youngling-1,210shares,andMr.Nozzolillo-1,117shares.(3)LILCOhasanoncontributorySupplementalDeathandRetirementBenefitsPlanforitsOfficersandcertainotherseniormanagementemployees.Currently,deathbenefitsfortheChairman,CEO,PresidentandChiefOperatingOfficer("COO")arefivetimestheirplancompensationand,foreachotherOfficer,threetimestheirplancompensation.CompensationunderthisplanisdefinedasthehighestsalaryincludinganyincentiveearnedpursuanttotheAnnualStockIncentivePlan.Thecostoflifeinsurance,paidbyLILCOforcoverageunderthisplan,isincludedinAllOtherCompensationforeachoftheindividualslisted.ForeachyearreflectedintheCompensationTable,insurancecoverageforthesedeathbenefitswasprovidedbysplit-dollarlifeinsurancepoliciesonthelifeofeachplanparticipant.Theamountshownforeachparticipantrepresentstheamountallocatedtosuchparticipantforincometaxpurposes.(4)AportionofDr.Catacosinos'alaryineachoftheseyearshasbeendeferredathisrequestandisreflectedintheamountsshown.5)LeonardP.NovelloassumeddutiesasGeneralCounseleffectiveApril1,1995.Priortothatdate,Mr.NovellowasGeneralCounselforthepublicaccountingfirmofKPMGPeatMarwick; STOCKPERFORMANCEGRAPHSet,forthbelowisagraphcomparingthecumulative'eturnofLILCO,theStandard&Poor's500CompositeStockIndex("S&P500")andtheS&PElectricUtilitiesIndex("S&PELEC")overthepastfive-yearperiod.Thegraphassumesa$100initialin0estmentonDecember31,1991,andareinvestmentofdividendsinLILCOandeachofthecompariiesreportedintheindices.$250~uLCOS&P500S&PELEC$200$150$100$140$135$50$01991'9921993199419951996 Conimon'toc/coulstandingonsuchdate.DirectorsandexecutiveofficersofBrooklynUnionhaveindicatedtheirintentiontovotetheirsharesofBrooklynUnionCommonStockinfavorofadoptionoftheBrooklynUnion/LILCOAgreementandtheKeySpanExchangeAgreement.1See"The'BrooklynUnio&ILCOCombination-Potential'ConflictsofInterestofCertainPersonsiritheCoiqbinatibnandtheLIPATransaction."'IVotingandRevocationofProxies.SharesofBrooklynUnionCommonStockrepresentedbyaproxyproperlysignedandreceivedatorpriortotheBrooklynUnionMeeting,unlesssubsequentlyrevoked,willbevotedinaccordancewith,theinstructionsthereon.Ifaproxyissignedandreturnedwithoutindicatinganyvotinginstructions,thesharesofBrooklynUnionCommonStockrepresentedbytheproxywillbevotedFORadoptionoftheBrooklynUnion/LILCOAgreementandFORadoptionoftheKeySpanExchangeAgreement.BrooklynUnionproxyholdersmayintheirdiscretionvotesharesvotedinfavorofadoptionoftheBrooklynUnion/LILCOAgreementortheKeySpanExchangeAgreementtoadjourntheBrooklynUnionMeetingtosolicitadditionalproxiesinfavorofsuchproposal.AnyproxygivenpursuanttothissolicitationmayberevokedbythepersongivingitatanytimebeforetheproxyisvotedbythefilingofaninstrumentrevokingitorofadulyexecutedproxybearingalaterdatewiththeSecretaryofBrooklynUnion,priortoorattheBrooklynUnionMeeting,orbyvotinginpersonattheBrooklynUnionMeeting.Allwrittennoticesofrevocationandothercommunicationswithrespecttorevocationofproxiesshouldbeaddressedasfollows:TheBrooklynUnionGasCompany,OneMetroTechCenter,Brooklyn,NewYork11201-3851,Attention:Secretary.AttendanceattheBrooklynUnionMeetingwillnotinandofitselfconstituterevocationofaproxy.SharesofBrooklynUnionCommonStockheldinthenamesofthetrusteesunderBrooklynUnion'sEmployeeSavingsPlanmaybevotedbysuchtrusteesupontheinstructionsofparticipantsinsuchPlan,orintheabsencethereof,assuchtrusteesdeemappropriate.TheBrooklynUnionBoardisnotcurrentlyawareofanybusinesstobeacteduponattheBrooklynUnionMeetingotherthanasdescribedherein.If,however,othermattersareproperlybroughtbeforetheBrooklynUnionMeeting,thepersonsappointedasproxieswillhavediscretiontovoteoractthereonaccordingtotheirbestjudgment.ShareholdersofBrooklynUnionwillnotbeentitledtopresentanymattersforconsiderationattheBrooklynUnionMeeting.ConfidentialVoting.BrooklynUnionhasadoptedapolicytotheeffectthatallproxy(votinginstruction)cards,ballotsandvotetabulationswhichidentifytheparticularvoteofaBrooklynUnionshareholderaretobekeptsecretfromBrooklynUnion,itsdirectors,officersandemployees.Accordingly,proxycardsarereturnedinenvelopesaddressedtothetabulator,Georgeson&CompanyInc.,WallStreetStation,P.O.Box1102,NewYork,NewYork10269-0667,whichreceivesandtabulatestheproxiesandisindependentofBrooklynUnion.Thefinaltabulationisinspectedbyaninspector(s)ofelectionwhoalsoisindependentofBrooklynUnion,itsdirectors,officersandemployees.TheidentityandvoteofanyshareholderwillbedisclosedneithertoBrooklynUnion,itsdirectors,officersoremployees,nortoanythirdpartyexcept(i)toallowtheindependentinspector(s)ofelectiontocertifytheresultsofthevotetoBrooklynUnion,itsdirectors,officersandemployees;(ii)asnecessarytomeetapplicablelegalrequirementsandtoassertordefendclaimsfororagainstBrooklynUnion;or(iii)intheeventashareholderhasmadeawrittencommentonsuchformofproxy.SolicitationofProxies.Inadditiontosolicitationbymail,directors,officersandemployeesofBrooklynUnion,whowillnotbespecificallycompensatedforsuchservices,maysolicitproxiesfromtheshareholdersofrooklynUnion,personallyorbytelephone,telecopyortelegramorotherformsofcommunication.Brokerageouses,nominees,fiduciariesandothercustodianswillberequestedtoforwardsolicitingmaterialstobeneficial45 ownersandwillbereimbursedfortheirreasonableexpensesincurredinsendingproxymatcnaistobeneficialowners.Inaddition,BrooklynUnionhasretainedGeorgesonEcCompanyInc.toassistinthesolicitationofproxiesfromjtsshareholders.ThefeestobepaidtosuchfirmforsuchservicesbyBrooklynUnionarenotexpectedtoexceed$25,000,plusreasonableout-of-pocketcostsandexpenses.BrooklynUnionwillbearitsownexpensesinconnectionwiththesolicitationofproxiesfortheBrooklynUnionMeeting,exceptthateachofBrooklynUnionandLILCOwillpayone-halfofthecostsandexpensesincurredinconnectionwithprintingthisJointProxyStatement/Prospectusandone-halfofallfilingfees.ForinformationabouttheLILCOMeeting,see"SelectedInformationConcerningLILCO-TheLILCOMeeting."46 REGULATORYMATTERS.I'It4Setforthbelowisasummaryofthematerialregulatoryrequirements,affectingthe,Combination.Althoughthecompanies/tavenotyetjiledfortheapprovalofalloftheagenciesdiscussed,itisanticipatedthat.allregulatoryapprovalsivill,havebeenreceivednopatertitantheendof1998.ForinformationconcerningcertainIRSrulings,see"FederalIncomeTax-Considerations-TaxRulingsRequestedforLIPATransaction."StateApprovalsandRelatedMattersTheutilityoperationsofbothLILCOandBrooklynUnionaresubjecttothecomprehensiveregulatoryjunsdictionofthePSC,whichmustapprovetheCombinationcontemplatedinthe'Brooklyn,Union/LILCOAgre'ement.OnMarch14,1997,LILCOandBrooklynUnion'filedajointpetitionrequesting'pprovalofthePSCunderSection70oftheNewYorkPublicServiceLawtoalloweachofthemtobecomesiibsidiariesoftheHoldingCompanythrough'theCombination.Section70ofthePublicService'LawprovidestliatthePSC'sconse'rittotheCombinationmaynotbegiven"unlessthere'isa'showingthatthe'exchangesareinthepublicinterest.A'spartofit'sreview,thePSC'mayconsidersuchmattersastheeffectoftheCombinationonthe'abilityof,LILCOandBrooklynUnion'tocontinuetoprovidesafeandadequateserviceatjustandreasonablerates,includingtlieimpact'oncustome'rservice,'ratesandthefinancial.integrityofBrooklyn'UnionandLILCO,aswellastheimpactonthecompetitive'environmentforeachofthecompanies.Inthe'jointpetition,LILCOandBrooklynUnioneach'proposedtoreflectanticipatedcostsavin'gsresultingfromtheirbusinesscombinationintheretailgasandelectricratesofbothutilities,andtohavethePSCconfirmoradoption'gterinrateplansforthegasandelectricopeiationsofLILCOandthegasoperationsofBrooklynUnion.Byamendment'tothejointpetitionfiledonMay16,1997,inlightofthependencyoftheLIPATransactionwhich,ifconsummated,willresultinLIPA,whichwillnotberegulatedbythePSC,beingthesupplierofretailelectricservicetoconsumersin;LILCO'sserviceterritory,QILCOhasofferedto,extendthesuspensioilperiodwithinwhichthe,PSCmustruleonLILCO'slong-termelectricrateplan,untilDecember3f,)997.Assumingtherequisiteregulatoryapprovals,,areobtained,theutilityoperations,of,bothLILCOandBrooklynUnionwillremainsubjecttoregulationbythePSC.The'oldingCompany'-willbea,"public,utility,holdingcompany,"under,thePublicUtilityHoldingCompany,A'ctof1935(the"Holding,Company'Act".),discussedjngreaterdetailbelow,butwillnotbesubjecttothedirectregulationofthePSC.f-flTheBrooklyn,UnionandLILCOjointpetitiontothePSConMarch14,1997alsos'oughtto,amendthePSCOrderdatedSeptember25,1996issuedinconnectionwiththeKeySpanholdingcompanyrestructuringsoasto'removeorrelaxcertainrestrictionsthatmaybeapplicableaftertheCombination.ThePSChasnotacteduponsuchpetitiott"asofthedateofthisJointProxyStatement/Prospectus,andthere'c'anbenoassurancethatany'orallofthereliefrequestedin)hepetitionwillbegranted.ThePSChasnojurisdictionoverthe'niergerofLILCOwithasubsidiaryofLIPAaspartof'theLIPATransaction.However,itisanticipatedthatLILCOandtheHoldipgCompanywillseekPSCapprovalforthetransferoftheTransferredAssets,"aswellasthedebtthatLIPAwillnotbeassumin'g,tooneormoresubsidiariesofthe'HoldingCompany.A.ftertheLIPAtransaction,thePSCwillhavecontinuing'jurisdictionovertheTransfereeSubsidiary'hatwillbeconductingthegasdistributionbusiness"previouslyconductedbyLILCO,"andmayhavejurisdictionovertheTransfereeSubsidiarythafownsthenon-nucleargeneratingassetspreviouslyownedbyLIL'CO,totheextentthatsuchsubsidiaiyengagesin'etailtransaction's.!PublicUtilityHoldingCompanyActof1935,AsiaresultoftheCombination,theHoldingCompanywillownallofthe,commonstock.ofbothLILCO(ifthe<<LIPATransactionisnotconsummated)andBrooklynUnionandwillthereforebeapublicutilityholdingcompanyundertheHoldingCompany,Act,subjecttothejurisdictionoftheSEC."Additionally,iftheLIPATransactionisconsummated,theHoldingCompanywillownallofBrooklynUnionCommonStockandaTransfereeSubsidiarythatwillconductthegasdistributionbusinessnowbeingconductedbyLILCO.ccordingly,theHoldingCompanymustapplyfor-andobtaintheapprovaloftheSECundertheHoldingompanyAct.However,theHoldingCompanywillfileanexemptionstatementwiththeSECtoexemptitself147 andeachofitssubsidiariesfrommostoftheprovisionsoftheHoldingCompanyAct.ThebasisfortheexemptionisthattheHoldingCompany,LILCO(ortheTransfereeSubsidiarythatwillsucceedtothegasdistributionbusinesscurrentlyconductedby'LILCO)andBrooklynUnionare"predominantlyintrastateincharacter,"inthateachof'themisorganized,andLILCO(orthesuccessorsubsidiary)andBrooklynUnioneachcarryontheirrespectivebusinessessubstantially,inNewYorkState.TheSEChasauthorityundertheHoldingCompanyActtochallengetheavailabilityofsuchexemptiontotheHoldingCompany..:trFederalPowerActtIILILCOissubjecttotheregula'toryjurisdictionoftheFederalEnergyRegulatoryCommission("FERC")undertheFederalPowerAct(the"FPA")withrespecttocertainwholesaleelectricsales'andtransmissionservices.Section203oftheFPAprovidesthatnopublicutilityshallsellorotherwisedispose'ofitsjurisdictionalfacilitiesor,directlyorindire'ctly,mergeorconsolidatesuchfacilitieswiththoseofany'otherpersonoracquireanysecurityofanyotherpublicutilitywithouthayingfirstobtainedauthorization'fromtheFERC.Accor'dingly',theapprovaloftheFERCisrequiredtoconsummatetheCombination,andis,similarly,requiredto"approvethetransferofLILCO'sFERC-jurisdictionalassetstoLIPAinconnectionwiththeLIPATransaction.PursuanttoSection203oftheFPA,theFERChastheauthoritytoapprovetheCombinationandtheBrooklynUnion/LILCOAgreementasbeingconsistentwiththepublicinterest.Inaddition,therates,terms,andconditionsofservicethatwillbeprovidedtoI.IPAunderthePowerSupplyAgreement(asdefinedherein)willrequireFERCapprovalunderSection205or'206oftheFPAaswillanyotherHoldingCompanyservicethatisdeemedtobeFERCjurisdictional.kAntitrustConsiderationsrUndertheHart-Scott-RodinoAntitrustImprovements"A'ctof1976,asamended(the"HSRAct"),andtherules,andregulationspromulgatedthereunder,theCombinationmaynotbeconsummateduntiltherequisitenotificationsandreportformshavebeenfiledwiththeAntitrustDivisionoftheDepartmentofJustice(the"AntitrustDivision")andtheFederalTradeCommission'(the"Fl'C")andthespecifiedHSRActwaitinperiodrequirementshave'beensatisfied.TheHSRActwaitingperiodis30daysfromthedatebothpartieshavefiledtheirnotificationandreportformunlessterminatedearlierorextendedbytheFTCortheAntitrustDivisionissuingarequestforadditionalinformationordocumentarymaterials.Ifsuchrequestismade,thewaitingperiodwillexpire,unlessterminatedearlier,at11:S9p.m.,NewYorkCitytime,onthetwentiethcalendardayafterbothpartieshavesubstantiallycompliedwithsuchrequest.Thereafter,thewaitingperiodmaybeextendedonlybycourtorderorwiththeparties'onsent.TheexpirationorearlierterminationoftheHSRActwaitingperioddoesnotprecludetheAntitru'stDivisionortheFTCfromchallengingtheCombinationonantitrustgroundseitherbeforeorafterconsummationoftheCombination.Privatepartiesandstateattorneysgeneralmayalsobringlegalactionunderfederalorstateantitrustlawsundercertaincircumstances.1IftheCombinationisnotconsummatedwithin12monthsaftertheexpirationorearlierterminationoftheHSRActwaitingperiod,LILCOandBrooklynUnionwouldberequi'redtosubmitnewfilingstotheAntitrustDivisionandtheFTC,andanewHSRActwaitingperiodwouldhavetoexpireorbeearlierterminatedbeforetheCombinationcouldbeconsummated,LILCOandBrooklynUnionintendtofiletheirpremergernotificationandreportformspursuanttotheHSRActatsuchtimeastheybelievethereisahighdegreeofcertaintythattheCombinationwillbeconsummatedwithin12monthsaftertheexpirationorearlierterminationofthewaitingperiodundertheHSRAct.TheFTCandtheAntitrustDivisionfrequentlyscrutinizethelegalityundertheantitrustlawsoftransactionssuchastheproposedtransaction.NeitherLILCOnorBrooklynUnionbelievesthattheCombinationwillviolatefederalantitrustlaws.Nevertheless;therecanbenoassurancethatachallengetotheproposedtransa'ctionw'illnotbemadeonantitrustgroundsor,ifsuchchallengeismade,whattheresultwouldbe.ItThepartiesintendtoseekconfirmationfromthestaffoftheFTCandtheAntitrustDivisionthatconsummationoftheLIPATransactionisexemptunderthe'SRAct.Ifsuchconfirmationcannotbeobtaineappropriatefilingswillbemadewithsuchagencies.48 tAtomicEnergyActOperationofNineMilePoint2,anuclear"powerplantinwhichLILCOhasan18%ownershipinterest,issubjecttoregulationbytheNuclearRegulatoryCommission("NRC").TheAtomicEnergyActof'1954(the"AtomicEnergyAct")providesthatsuchanownershipinterestmaynotbetransferred'or'nanymannerdisposedof,directlyorindirectly,toanypersonthroughtransferofcontrolunlesstheNRCfindsthatsuchtransferisinaccordancewiththeAtomicEnergyActand'consentstothetransfer.PursuanttotheAtomicEnergyActandtheLIPAAgreement,LILCOwillseekapprovalfromtheNRCasnecessary.PublicAuthoritiesControlBoardApprovalTheLIPATransactionissubjecttotheapproval"ofthePACB.ThePACB,createdpursuanttoNewYorkStatePublicAuthoritiesLaw("PAL"),consistsoffivepersonsappointedbythegovernor,ofwhichoneisupontherecommendationofthemajorityleaderoftheNewYorkStateSenate,oneupontherecommendation'oftheSpeakeroftheNewYorkStateAssembly,oneupontherecommendationoftheminorityleaderoftheNewYorkStateSenateandoneupontherecommendationoftheminorityleaderoftheNewYorkStateAssembly.ThemembersappointedbythegovernorupontherecommendationoftheminorityleaderoftheSenateandtheminorityleaderoftheAssemblyarenon-votingmembers.TheunanimousvoteofthevotingmembersoftheboardisrequiredtoauthorizeactionbythePACB.PursuanttoPAL,LIPAmaynotundertakeanyprojectwithouttheapprovalofthePACB."Project"isdefinedtomeananactionundertakenbyLIPAthat:(i)causesLIPAtoissuebonds,notesorotherobligations,orsharesinanysubsidiarycorporation,or(ii)significantlymodifiestheuseofanassetvaluedatmorethan,one'illiondollarsownedbyLIPAorinvolvesthesale,leaseorotherdispositionofsuchanasset,or(iii)commitsLIPAtoacontractoragreementwithatotalconsiderationofgreaterthanonemilliondollarsanddoesnotinvolvethedaytodayoperationsofLIPA.ThePACBshallonlyapproveaprojectproposedbyLIPAuponitsdeterminationthat:(1)theprojectisfinanciallyfeasibleasthestandardisdefinedinPAL;articleone-A;(2)theprojectdoesnotmateriallyadverselyaffectoverallrealpropertytaxesintheservicearea;(3)theprojectisanticipatedtoresultgenerallyin'lowerutilityratesinthe'servicearea;nd(4)theprojectwillnotmateriallyadverselyaffectoverallrealpropertytaxesorutilityratesinother'areasofhestateofNewYork.lGeneralLILCOandBrooklynUnionpossessmunicipalfranchisesandenvironmentalpermitsandlicensesthatmay'eedtoberenewedorreplacedasaresultoftheCombination.Thecompaniesdonotanticipateanydifficultiesatthepresenttimeinobtainingsuchrenewalsorreplacements.UndertheBrooklynUnion/LILCOAgreement,LILCOandBrooklynUnionhaveagreedtousereasonableeffortstoobtainallnecessarymaterialpermits,licenses,franchisesandothergovernmentalauthorizationsneededtoconsummateoreffectthetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement.Inaddition,undertheLIPAAgreement,eachofthepartiestheretohasagreedtosimilarlyusereasonableeffortstoobtainallsuchrequiredauthorizationsandapprovalsneededtoconsummateoreffectthetransactionscontemplatedbytheLIPAAgreement.VariouspartiesmayseekinterventionintheproceedingsassociatedwiththeregulatoryapprovalprocessinanattempttoopposetheCombinationandtheLIPATransactionortohaveconditionsimposeduponthereceiptofthenecessaryapprovals.AlthoughLILCOandBrooklynUnionbelievethattheywillreceivetherequisiteregulatoryapprovalsfortheCombinationandtheLIPATransaction,thetimingoftheirreceiptcannotbedetermined.ItisaconditiontotheconsummationoftheCombinationthatfinalordersapprovingtheCombinationbeobtainedfromthevariousfederalandstatecommissionsdescribedabove,including(iftheLIPATransactionwillnotbeconsummatedsubstantiallycontemporaneouslywiththeCombination)thePSC'sfinalorderapprovingalong-termrateplan,ontermsandconditions(x)whichwouldnothave,orwouldnotbereasonablylikelytohave,amaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsoftheHoldingCompanyanditsprospectivesubsidiariestakenasahole,or(y)whichwouldnotbemateriallyinconsistentwiththeagreementsofthepartiescontainedintherooklynUnion/LILCOAgreement.Forpurposesoftheabove-referencedconditionwithrespecttothePSC's49 finalorder,theprospectsoftheHoldingCompanyanditssubsidiarieswillmeanthecombinationoftheresultsanticipatedbycertainregulatedearningsforecastsofBrooklynUnionandLILCOwhichthepartiespreviouslyprovidedtoeachother.ItisaconditiontotheconsummationoftheLIPATransactionthatfinalordersapprovingtheLIPATransactionbeobtainedfromthevariousfederalandstatecommissionsdescribedaboveontermsandconditions(i)whichwouldnothave,,orwouldnotbereasonablylikelytohave,amaterialadverseeffectonthebusiness,assets,financialconditionorresultsofoperations,oftheHoldingCompany,(ii)whichwouldnotbemateriallyinconsistentwiththeagreementsofthepartiescontainedintheLIPAAgreemcntorintheotherBasicAgreements(asdefinedherein)or(iii)whichwouldnothave,orwouldnotbereasonablylikelytohave,amaterialadverseeffectontheRetainedAssets(asdefinedherein)ortheproperties,business,operations,financialconditionsorprospectsofthebusinessrelatingtotheRetainedAssetstakenasawholeoramaterialadversedeclineintheelectricratesavingsprojectedtoberealizedaftertheconsummationoftheLIPATransaction.AtanytimepriortotheEffectiveTime,tothe'extentpermittedbyapplicablelaw,theconditionstoBrooklynUnion'sorLILCO'sobligationstoconsummatetheCombinationmaybewaivedbytheparties.Anydeterminationtowaiveaconditionwoulddependuponthefactsandcircumstancesexistingatthetimeofsuchwaiverandwouldbemadebythewaivingparty'sBoardofDirectors,exercisingitsfiduciarydutiestosuchpartyanditsshareholders.LILCOandBrooklynUnionhavealsoagreedundertheBrooklynUnion/LILCOAgreementtonotifyeachotherofanychangesintheirapprovedratesorcharges(otherthanpass-throughfuelandgasratesorcharges),standardsofserviceoraccounting,andnottomakeanyfilingtochangeitsratesonfilewiththePSCthatwouldhaveamaterialadverseeffectonthebenefitsassociatedwiththeCombination.TheHoldingCompanyandLILCO'haveagreedundertheLIPAAgreementtonotifyLIPAorLIPASubofanychangesintheirratesorcharges(otherthanpass-throughfuelratesorcharges,butincluding,withoutlimitation,gasratesorcharges),standardsofserviceoraccounting.LILCOhasalsoagreedundertheLIPAAgreementthatitwillnot,withouttheconsentofLIPA,fileorprosecuteanyratecaseorothernonroutineproceedingbeforethePSCor7ERCoranyappealtherefrom,exceptforcasesorproceedings(i)relatingsolelytopass-throughfuelorgasratesorcharges,(ii)requiredtobemadebyorderofthePSCorFERC,(iii)relatingsolelytotheTransferredAssets(iv)involvingcommercialorcontractual.disputeswhicharerequiredtoberesolvedthrough'uchproceedingsor(v)amatterthatLILCOreasonablybelievesthreatensthefinancialviabilityofLILCO.LILCOisrequiredtoprovidereasonablepriornotice(including,uponrequestofLIPA,copiesofdraftdocumentation)ofanyproposedfilingwiththePSCorFERC.50 tUNAUDITEDPROFORMACONSOLIDATEDCONDENSEDFINANCIALINFORMATIONBROOKLYNUNION/LILCOCOMBINATIONANDLIPATRANSACTION(PVRCHASE)ThefollowingunauditedproformafinancialinformationreflectsadjustmentstothehistoricalfinancialstatementsofLILCOtogiveeffecttotheproposedtransferofLILCO'sgasandgenerationbusinesstosubsidiariesoftheHoldingCompany,theproposedstockacquisitionofLILCObyawhollyownedsubsidiaryofLIPAandtheproposedCombinationwithBrooklynUnioninaccordancewiththeCombination.Theunauditedproform'a."consolidatedcondensedbalance'heet,'atMarch31,1997giveseffecttotheproposedLIPATransactionandtheCombinationasiftheyhadoccurredatMarch31,1997.TheunauditedproformaconsolidatedcondensedstatementofincomeforthetwelvemonthperiodendedMarch31,1997giveseffecttotheproposedLIPATransactionandtheCombinationasiftheyhadoccurredatApril1,1996.ThesestatementsarepreparedonthebasisofaccountingfortheCombinationunderthepurchasemethodofaccountingandarebasedontheassumptionssetforthinthenotesthereto.InApril1997LILCOchangeditsyear-endfromDecember31toMarch31.Thefollowingproformafinancialinformationhasbeenpreparedfrom,andshouldbereadinconjunction,with,theLIPAAgreement(AnnexD),andthehistoricalconsolidatedfinancialstatementsandrelatednotestheretoofBrooklynUnionandLILCO,incorporatedbyreferenceherein.Thefollowinginformationis,notnecessarilyindicativeofthefinancialpositionoroperatingresultsthatwouldhaveoccurredhadtheproposedLIPATransactionandtheCombinationbeenconsummatedonthedate,oratthebeginningoftheperiod,forwhichtheproposedLIPATransactionandtheCombinationarebeinggiveneffectnorisitnecessarilyindicativeoffuture,operatingresultsorfinancialposition.K51
'HOLDINGCOMPANYUNAUDITEDPROFORMACONSOL'IDATEDCONDENSEDBALANCESHEETMarch31,1997gnMillions)BrooklynUnion/LILCO,LIPATransaction'AsA'djustedCombinationBrooklyn"LILCO"SaletoProForma'ILCO'UnionProForma(Historical)LIPA(I)Adjustments,AsAdjusted(Historical),AdjustmentsHoldingCompanyFroFotmoASSETSPropertyUtilityPlantElectricGasCommonConstructionworkinprogress................Nuclearfuelinprocessandinreactor..........Less-Accumulateddepreciationandamortization.Gasexplorationandproduction,atcost...........Less-Accumulateddepletion.....'..........'otalProperty.'ostInExcessofNetAssets'Acquired,net.'.'....RegulatoryAssetsIBasefinancialcomponent(lessaccumulatedamortizationof$782.5)..........~."~~..~"~Ratemoderationcomponent......'......"........Shorehampost-settlementcosts..................Regulatorytaxasset.Postretirementbcncfitsotherthanpensions........Other.TotalRegulatoryAssets....................NonutilityPropertyandOtherInvestments.....CurrentAssetsCashandcashequivalents......................Deferredtaxasset.Accountsreceivableandaccruedrevenues........OtherCurrentAssetsTotalCurrentAssets.DeferredCharges.ContractualreceivablefromLIPA.............TotalAssets(1,759.1)3.7M.O.(854.7)2,034.44'3,256;3'09.5.1996.31,767.2357.7456.07,243.018.93,256.3409.5996.31,767.2334.26,763.514.164.593.3489.9162.5810.277.6$11,849.793.3327.51.3422.152.5$9,286.6$3,900.2$2,821.2',171.'2263.3,108.952.415.5'5.5(300.7)(2)(300.7)2,432.3(3)119.0(4)19.4(2)2,570.7281.3(2)$2,551.3$1,079.01,17I'.2263.3565(904A)rI665.tjo57.0121.8178.84.82,496.8119.0181.8161.22,958.825.1281.3$5,114.4'4tv4156.9If9*'74.1(5)74.152.5422.1474.6120.9$2,493.8(74.1)(5)$308.0J$-;.$-'1,805.9III)44(440.1)563.9'188.3),.>'1,741.4308.0(6)$1,079.02,977.1263.356.5(1,344.5)563.9(188.3)~r3,407.0308.0vtvJ74.157.0)2L8252.9I181.8583.33,433.471.9281.357,916.2$2,432.3(3)(75.0)(15)75,0(15)2,432.3$2,457.33,459.8339.16,256.2529.7$2,549.14,457.0702.17.708.2562.8230.2122.751.1332.665.5613.9188.2399.0(4)399.02,420.52,299.0(280.0)(4)110.420.52,530.92,319.5(280.0)433.9(7.0)$11,849.7$9,286.6$2,551.3nauditedProFormaConsolidatedSeeaccompanyingNotestoUCAPITALIZATIONANDLIABILITIESCapitalizationCommonShareholders'quity..............Long-termdebtPreferredstockTotalCapitalization.RegulatoryLiabilitiesCurrentLiabilitiesAccountspayablcandaccruedexpenses......Accruedtaxes(includingfederaltncomctax)..Othercurrentliabilities...TotalCurrentLiabilities................DeferredCreditsDeferredfederalincometax................OtherTotalDeferredCredits......~..........OperatingReserves.CommitmentsandContingencies..........MinorityInterestInSubsidiaryCompany...TotalCapitalizationandLiabilities....$2,524.1922.2438.03,8&4.333.1107.5450.1267.1824.7(158.5)89.9(68.6)440.9$5,114.4Condensed$1,004.1724.66.31,735.0165.868.674.9309.3309.757.7367.482.1$2,493.8Financial60.8(6)(7)334.1518.7(.3)(7)341.760.51,194.5$308.0Statements.151.2147.6298.8440.982.1$7$253.8(6)(7)$3,782.01,646.8(6.3)(7)438.0247.55,866.833.152
,~HOLDINGCOMPANYHoldingCompanyProForma$956.32,011.4134.13,101.81,567.0519.5108.0154916.2337.6102.52,805.7296.135.5331.6125.6206.035.9$170.1155.9eUNAUDITEDPROFORMACONSOLIDATEDCONDENSED,STATEMENTIOFINCOMEFor.the'fwelveMonthsEndedMarch31;1997,~",.~gnMillionsexceptPerShareAmounts)'IIt~iSalePro'LILCOBrooklynLILCOtoFormaAsUnionProForma(Historical)LIPA(1)AdjustmentsAdjusted(Historical)AdjustmentsRevenues.,Electric,......................'....$2,465.0$1,520.2(10}$11.5(8)$956.3$-$-Gas-Utilitysales..............672.7--'72.71,338.7Gasproduction"andother"...."".-...........''"""'-'-"134.1TotalRevenues.........3,l37.71,520.2'1.51,629.01,472.8OperatingExpensesOperations-fuelandpurchasedpower.........954.8'"15.0-939.8627.2Operations-other...........".....'.'.:..372:8''20.5'-152.3367.2Maintenance............117.169.347.860.2Depreciation,depictionandamortization.~.....-155.0'100.7~-.>54.3'92.97.7(6)Basefinancialcomponentamortization........101.0101,0.Ratemoderationcomponentamortization......,(3.0)(3.0),Regulatoryliabilityc'omponentamortization...(88.6)(88.6)Otherregulatoryamortization................'112.396.1-'"16.2Operatingtaxes..............469.6,280.7--188.9'148.7Federalincometaxes........210.6160.87.1(9)56.945.6TotalOperatingExpenses....;.........'...'..2,401.6'52.57.11,456.21,341.8''.7OperatingIncome,.........736.1'67.74.4l72.8131.0'7.7)tOtherIncome.and(Deductions)............21.5-31.7.-(10.2)45.7IncomeBeforeInterestCharges...,.........757.61599.4,,4.4162.6,176.7(7.7)InterestCharges.s..i..........,435.2349.9>>,~(7,6)(9)77.747.9NetIncome..i..............".............322.'4'49.5'2.0'84.9128.8(16)(7.7)Preferredstock'dividendrequirements...'."'.'....52.139.923.735.9"~0.3(0.3)(7)EarningsforCommonStock...............$270.3$209.6$(11.7)(11)$49.0$128.5$(7.4)AverageCommonSharesOutstanding......120.6120.6120.6120.649.8(14.5)EarningsperCommonandEquivalentShares$2.24$1.74$(.09)$0.41$2.58$-$1.09~'aIISeeaccompanyingNotestoUnauditedProFormaConsolidatedCondensedFinancialStatements.53 NotestoUnauditedProFormaConsolidatedCondensedFinancialStatements1.Thehistorical'fina'ncialstatementso'fLILCOhavebeenadjusted'togtveeffectto'heproposedtransactionwithLIPA,pursuanttowhichLILCO'willdistribute'certainofits'rieta'ssetsrelatingtoitsgasandgenerationbusiness("TransferredAssets")tosubsidiaries'oftheHoldingiCompany.LIPAwillthenacquireLILCOinastocksale.TheadjustmentsarebaseduponadisaggregationofLILCO'sbalancesheetandoperations.;>asestimatedbythe,management,ofLILCO,andaresubjecttoadjustmentpursuanttothetermsoftheLIPA''"'agr'cement.'KInconnectionwiththistransaction,theprincipalassetstobeacquiredbyLIPAthroughitsstockacquisitio'nofLILCOincludetheelectrictran'smissionand'distributionsystem("TheLIPATransmission"and~DistributionSystem"),LILCO's18%interestinNineMilePoint2nuclearpowerstation,certain.ofLILCO'sregulatoryassetsassociatedwithitselectricbusinessandanallocationofaccountsreceivableandotherassets.TheprincipalliabilitiestobeassumedbyLIPAincludeLILCO'sregulatoryliabilitiesassociatedwithitselectricbusiness,aportionofLILCO'slong-termdebtand,an,allocationofac'counts....payable,accruedexpenses,customerdeposits,otherdeferredcreditsandclaims.2.InconnectionvyiththeLIPATransaction,LIPAiNcontractuallyresponsibleforreimbursingtheHoldingCompanyforpostretirementbenefits,otherthanpension'co'sts,relatedtoemployeesofLILCO'selectricbusiness.Aproformaadjustmenthasbeenreflectedto'reclassifytheassociatedregulatoryassetforpostretirementbenefitsotherthanpensionstocurrentandnon-currentaccountsreceivable'pursuanttoLIPA'sobligationtoasubsidiaryoftheHoldingCompany.-,.*I3.,TheCashPurchasePricetobepaidbyLIPAinconnection-withitsstockacquisition,of,LILCOwillbe.$2,497.5'million.TheCashPurchasePricewasdeterminedbasedupontheestimatednetbookvalueoftheLILCORetainedAssetsof$2',500.8millionasestimatedbyLILCOinaprojectedbalancesheetasof.December31,1997..'aseduponthebalancesheet'asofMarch31,1997,thenetbook'valueoftheL'ILCORetainedAssetsamountedto'2,457.3'"million.Inaddition,theLIPATransactionobligatestheHoldingCompanyupontheclosingofthetransactiontoremitto'LIPA$15millionassociatedwiththerecovery,throughlitigationofcertainrealestatetaxespreviouslypaid.Transactioncostsarecurrentlyestimatedtobe;$10million.AssumingtheLIPATransactionwascompletedonMarch31,1997,thenetcashtobe,receivedbytheHoldingCompanywouldamountto:CashPurchasePriceCashpaidtoLIPA............,.TransactionCosts.NetCash.$2,457.3''''15.0)'(0.0)$2,432.3ThedistributionoftheTransferredAssetsfromLILCOtosubsidiariesoftheHoldingCompanywillresultintheimpositionoffederalincometaxesonLILCO.PursuanttotheLIPAAgreement,thesubsidiariescreatedbytheHoldingCompanytoreceivetheTransferredAssetswillreceivethebenefitoftheincreasedtaxbasisoftheTransferredAssetsandwillpaytheLILCOtax.IftheLIPATransactionweretohaveoccurredatMarch31,1997,thetaxwouldhaveamountedtoapproximately$400million.Thetaxisderivedfromthedifferencebetweentheestimatedfairvalueofthedistributedassetsandtheirexistingtaxbasis.Forfinancialreportingpurposes,thesubsidiariesreversedtheexistingdeferredtaxliabilityof$280millionrelatingtotheTransferredAssetsandrecordeda$119milliondeferredtaxassetreflectingtheincometaxeffectbywhichthetaxbasisoftheTransferredAssetsexceededtheirbookbasis.TheunauditedproformacondensedconsolidatedbalancesheetasofMarch31,1997reflectsthereclassificationof$74.1millionofBrooklynUnionregulatorytaxassetsfromdeferredchargestoregulatoryassetsinorder,toconsistentlypre'senttheregulatoryassetsofBrooklynUnionandLILCO,54 6.ThepurchasepriceforBrooklynUnionatMarch31,1997,whichamountedtoapproximately$1.245billionincludingapproximately$54.1'millionoftransactioncosts,hasbeendeterminedbaseduponanaverageofLILCO'sopeningandclosingstockpricesforthetwotradingdaysbeforeandthreetradingdaysafterDecember29,1996.Thepurchasepricehasbeenallocatedtoassetsacquiredandliabilitiesassumedbased<upontheirestimatedifairvalues.Itisanticipatedthatthefairvalueoftheutilityassetsacquiredisrepresentedbytheirbookvalue,whichapproximatesthevalueoftheseassetsrecognizedbytheNewYorkStatePublicServiceCommissioninestablishingrateswhichare'designedto,amongotherthings,provide,.forareturnonthebookvalueoftheseassetsandtherecoveryofcostsincludedasdepreciationandamortizationcharges.TheestimatedfairvaluesofbrooklynUnion'snon-utilityassetsapproximatetheircarryingvalues.BothBrooklynUnionandLILCOwillseekPSCapprovalforrecoveryoftransactioncosts.Baseduponcurrentinformation,thepurchaseprice,includingmerger-relatedtransactioncosts,exceedsthefairvalueofthenetassetsacquiredby$308.0million,whichwillbeamortizedtoincomeover40years.7.InconnectionwiththeformationofKeySpan,BrooklynUnionwillredeemitsoutstandingpreferredstockat,apremiumof2%pertermsoftheoriginalissuanceagreement.Asaresult,accountspayablehasbeenadjustedtoreflectapayableof$6.7millionincludingpremiumsof$0.1millionwhichhav'ebeenchargedtoCommonShareholders'quity.,8.TheagreementwithLIPAincludes.aprovisionfortheHoldingCompanytoearnintheaggregateapproximately$11.5millioninannualmanagementservicefeesfromLIPAforthemanagementoftheLIPATransmission,andDistributionSystemandthemanagementofallaspectsoffuelandpowersupply.Theseagreementsalsocontaincertainincentiveandpenaltyprovisionswhichcouldmateriallyimpactearningsfromsuchagreements.Theproformachargeof$7.1millionrepresentstheincometaxeffectassociatedwiththerecordingoftheproformaadjustmentsforthe$11.5millionmanagementfee(seeNote8),andareductionininterestexpenseofapproximately$7.6millionassociatedwiththerecapitalizationofthesubsidiarywhichcontainsthegasandgenerationbusinesses.RevenuesforboththeassetsacquiredbyLIPAandthe.TransferredAssetsweredeterminedbaseduponarevenuerequirementsmodelwhichconsideredthecostofservicefortheseassetsandareturnoncapitalizationbaseduponanimputedallowedrateofreturn.Noadjustmentshavebeenmadetoearningsoncommonstocktoreflectearningsonnetavailableproceedsofapproximately$1.7billiontobereceived,afterremittancestotheHoldingCompany'sgasandgenerationsubsidiariesforworkingcapitalpurposes(seeNotes3and12).Ifthesefundswereinvestedat7%(the30yearUSTreasuryBondyieldbasedonrecentprices),theHoldingCompanywouldhaverealizedadditionalinterestincome,netoftaxes,ofapproximately$77.3million,orapproximately$.49pershare,onaconsolidatedbasis.Eachonepercentchangeintheassumedinterestrate,wouldincrease/decreaseinterestincome,netoftaxes,by$11.0million.LILCO'sallowedrateofreturnonitscommonequityforitselectricbusinessiscurrently11%,aftertaxes.12.13.14SubsequenttothesaletoLIPA,aportionoftheproceedstobereceivedbytheHoldingCompanywillberemittedtoLILCO'sgasandgenerationsubsidiariesinordertomeetthesubsidiariesworkingcapitalneeds.Suchproposedtransactionhasbeeneliminatedintheconsolidationprocess.TheallocationbetweenBrooklynUnionandLILCOandtheircustomersoftheestimatedcostsavingsresultingfromtheCombination,netofthecostsincurredtoachievesuchsavings,willbesubjecttoregulatoryreviewandapproval.Noneoftheestimatedcostsavings,havebeenreflectedintheunauditedproformaconsolidatedcondensedfinancialstatements.TheunauditedproformacombinedcondensedfinancialstatementsreflecttheexchangeofeachshareofLILCOCommonStockoutstandinginto0.880sharesofHoldingCompanyCommonStockandtheconversionofeachshareofBrooklynUnionCommonStockoutstandingintooneshareofHoldingCompanyCommonStock,asprovidedintheBrooklynUnion/LILCOAgreement.55 15.Asmorefullydescribedinthesection'entitled"TheLIPATRANSACTION-AgreementandPlanof.Merger,"LILCOwilltransfertheTransferredAssetstosubsidiariesof,theHoldingCompanyinexchangeforsharesoftheHoldingCompanycommonstockandupto$75millionfaceamountofHoldingCompanyPreferredStock.The'privatelyplacedPreferredStockwillbenon-voting,non-convertibleandhave.afive-yearterm.Forpurposesoftheseproformafinancialstatements,itisassumedthattheHoldingCompanywillissue$75millionofPreferredStock,LILCOwillsellthepreferredstockfor$75millioninproceedsandwillretaintheproceeds'(Le.,aRetainedAsset).Witha'$75millio'nincreaseintheRetainedAssets,theLIPAAgreementprovidesthattheRetainedDebtwill'increaseby'acorrespondingamount.'heLIPAAgreementalsoprovidesthatiftheHoldingCompanyweritoissueanamountotherthan$75millionofPreferredStock,theincrementaldifferencebetweentheamountactuallyissuedand$75million,will.resultinacorrespondingincreaseordecreaseintheamountof-,accountspayableretainedbyLILCO.Theseproformafinancialstatementsreflectareduction,ininterestexpenseforthereducedlevelofsubsidiarydebt,andtorellectanincreaseinpreferredstockdividendrequirements.Finally,forpurposesoftheseproformafinancialstatements,itis'assumedthat'thedividendrateonthisprivatelyplacedPreferred'Stockwillbe7.95%,whichisequal'totheCompany'shighe'stcostpreferredstock.'6.TheBrooklynUnionearningsforthe12monthperiodendedMarch31,1997includenon-recurringincomeaggregatingapproximately$33.5million,netoftaxes,or$0.68pershare,relating'ogainsontheinitialpublicofferingofasubsidiary'sstockandthe"saleofaninvestmentinaCanadianplant.Thi'sincomewaspartially'offsetbya$7.8millioncharge,netoftaxes,or$0.16pershare,relatingtoreorganization'expensesincurredbythesubsidiary.,'If~I56 0UNAUDITEDPRO'FORMACOMBINEDCONDENSEDFINANCIAL,INFORMAT/ONBROOKLYNUNION/LII'.COCOMBINATION'gOOLING)o'+Thefollowingunauditedproformafinancial;informationcombinesthehistoricalconsolidatedbalancesheetsandstatementsofincomeofBrooklynUnionandLILCOincludingtheirrespectivesubsidiaries,aftergivingeffecttotheCombination.BrooklynUnion'sbalancesheetasofMarch31,1997andresultsofoperationsfor'each'fthe12month'periodsinthethreeyearperiodendedMarch31,1997havebeencombinedwithLILCO,'sbalancesheetas,of,gyfarch31$99/andresultsofoperationsforeachofthe12monthperiodsinthethreeyearperiod'endedMar'ch'31,1997'toarriveattheunauditedproformacombinedcondensedbalance.sheetasofMarch31,1997andthestatementsofincomeforeachofthe12monthperiodsendedMarch31,1997.TheunauditedproformacombinedcondensedbalancesheetatMarch31,1997giveseffecttotheCombinationasifithadoccurredatMarch31,l997.Theunauditedproformacombinedcondensedstatementsofincomeforeachofthe12monthperiodsinthethreeyearperiodendedMarch31,1997giveeffecttotheCombinationasifithadoccurredatApril1,1994.Thesestatementsare-preparedonthebasisofaccountingfortheCombinationasapoolingofinterestsandarebasedontheassumptionssetforthinthenotesthereto,ItshouldbenotedthatinApril1997LILCOchangeditsyear-endfromDecember31toMarch31.PThefollowingunauditedproformafinancialinformationhasbeenpreparedfrom,andshould,bereadinconjunctionwith,thehistoricalconsolidatedfinancialstatementsandrelatednotesthefetoofBrooklynUnionandLILCO,incorporatedbyreferenceherein.Thefollowinginformationisnotnecessarilyindicativeofthefinancialpositionoroperatingresultsthatwouldhave'occurredhadtheCombinationbeenconsummatedonthedate,oratthebeginningoftheperiod,forwhichtheCombinationisbeinggiveneffectnorisitnecessarilyindicativeoffutureoperatingresultsorfinancialposition.hlEI'{'7 HOLDINGCOMPANYUNAUDITEDPROFORMACOMBINEDCONDENSEDBALANCESHEETMarch3191997PoolinggnMillions)->>"'oldingBrooklynCompanyLILCOUnionProFormaProForma(Hlstoslcol)(Hlstodcol)AdjustcolsCobloodASSETSPropertyUtilityPlantElectricGas~)4~9'Common.ConstructionworkinprogressNuclearfuelinprocessandinreactor.....,..4...~......,.~.,4....Less-Accumulateddepreciationandamortization...................Gasexplorationandproduction,atcostLess-Accumulateddepletion.............."4"""""6"~~~~~~~ro~TotalPropertyRegulatoryAssetsBasefinancial,component(lessaccumulatedamortizationof$782.5)........Ratemoderationcomponent.Shorehampost-settlementcosts~rrrrdo~4~~RegulatorytaxassetPostretirementbenefitsotherthanpensionsOtherTotalRegulatoryAssets.NonutilityPropertyandOtherInvestmentsCurrentAssetsCashandcashequivalentsDeferredtaxassetAccountsreceivableandaccruedrevenues.OtherCurrentAssets.TotalCurrentAssets.DeferredChargesTotalAssets$3,900.21,171.2263.3108.915.5(1,759.1)3,700.03,256.3409.5996.31,767.2357.7456.07,243.018.964.593.34899162.5810.2"77.68l).849.7$',805.9(440.1)563.9(188,3)1,741.48156.952.5422.1474.6120.9$2,493.8.74.1(1)74.1(74.1)(1)$-$3,900.Z2,977.1263.3108.915.5(2,199.2)563.9(188.3)5,441.43,256.3409.5996.31,841.3357.7456.07,317.1175.8584.61,284.8124.4$14,343.5CAPITALIZATIONANDLIABILITIESCapitalizationCommonShareowners'quityLong-termdebtPreferredstockTotalCapitalizationRegulatoryLiabilitiesCurrentLiabilitiesAccountspayableandaccruedexpensesAccruedtaxes(includingfederalmcometax)Othercurrentliabilities.TotalCurrentLiabilities.DeferredCreditsDeferredfederalincometax.Other.TotalDeferredCredits.OperatingReserves...CommitmentsandContingencies.MinorityInterestlnSubsidiaryCompany.TotalCapitalizationandLiabilities$2,549.14,457.0702.17,708.2562.8230.251.1332.6613.92,420.5110.42,530.9433.9$11,849.7$1,004.1724.66.31,735.0165.868.674.9309.3309.757.7367.482.1$2,493.8(542)(2)(7)(63)(7)(60.5)3,499.05,181.6702.19,382.7562.860.8(2)(7)456.8119.7(0.3)(7)407.260.6983.72,730.2168.12,898.3433.982.1$14,343.5SeeaccompanyingNotestoUnauditedProFormaCombinedCondensedFinancialStatements58 HOLDINGCOMPA'NY'NAUDITEDPROFORMA'OMBINEDCONDENSEDSTATEMENTOF'INCOME-For.theTwelve'MonthsEnded)Marchi31;t1997Pooling(InMillions,ExceptPerShareAmounts)~hd.nBrooklynLILCOUnion(Htetortmt)lHlstorlesl)HoldingCompanyProFormaProFormaAdjnstmenlsCome)nodRevenuesElectric...........'...........'..Gas-"Utilitysales...Gasproductionandother'.'otalRevenues$2,465.0$672.71,338.7134.1~3,137.7-1,472.8"~s4$-=~$2,465.0.<"2,011.4')34'.)'4610.5'peratingExpensesOperations-fuelandpurchasedpower/Operations-other.........'...........Maintenance.De'preciation,dhpletionandamortization.Basefinancialcomponentamortization.Ratemoderationcomponentamortization....Regulatoryliabilitycomponentamortization..Otherregulatoryamortization.......OperatingtaxeseFederalincometaxessrTotalOperatingExpenses..OperatingIncomeo~~~~~~~o~~~~'954.8372.9117.0155.0'101.0(3.0)'(88.6)112.3469.6210.62,401.6736.1'627.2'-"'',582.0367.2-'40.1602.-'*'177.2'2.9'-'''247.9''Ioi.O"'3.0)(88.6)'.'112.3'48.7-""618.345.6''""'256.21,341.8'"',743.4131.0''67;1OtherIncome.IncomeBeforeInterestCharges..'nterestChargessINet,IncomerPreferredstockdividendrequirements.EarningsforCommonStockrAverageCommonSharesOutstanding''IrEarningsperCommonandEquivalentShares21.5757.6'35.2322.452.1'$270.3!'120.6$2.2445.7-67.2176.7'-'34.347.9"'-'483.1128.8(4)-451.20.3(0.3)(7)52.1$128.5$0.3$4399.149.8(23.8)(3)146.6$2.58$-$2.720SeeaccompanyingNotestoUnauditedPro'FormaCombinedCondensedFinancialStatements.'59 HOLDINGCOMPANYUNAUDITEDPRO-FORMACOMBINEDCONDENSEDSTATEMENTOFINCOMEFortheTwelveMonthsEndedMarch31,1996Pooling(InMillionsExceptPerShareAmounts)BrooklynLILCOUnionProFormaProForma(Historical)(Historical)AdjustmentsCombined0RevenuesElectricGas-,Utilitysales.GasproductionandotherTotalRevenues.$2,497.4$-,$-$2,497.4650.81,272.2,-,1,923.097.8-,97.83,148.25,370.0,-,4,518.2OperatingExpensesOperations-fuelandpurchasedpower.Operations-otherMaintenance..Depreciation,depletionandamortization.Basefinancialcomponentamortization.RatemoderationcomponentamortizationRegulatoryliabilitycomponentamortization..OtherregulatoryamortizationOperatingtaxes.Federalincometaxes.....TotalOperatingExpenses...,.OperatingIncomeOtherIncomeIncomeBeforeInterestCharges888.6391.1124.4147.3101.0(49)(88.6)175.2455.9217.02,407.0741.245.5786.7569.5349.854.772.'7139.442.61,228.7141.35.7147.01,458.1740.9179.1220.0101.0(49)(88.6)1,75.251.2933.7InterestChargesNetIncomePreferredstockdividendrequirements.EarningsforCommonStockAverageCommonSharesOutstandingEarningsperCommonandEquivalentShares471.9314.852.5$262.3119.552.594.50.3$94.248.8$2.19$1.93524.4409.3(0.3)(7)52.5$0.3$356.8(23.5)(3),144.8$-$2.46Seeaccompa'nyingNotestoUnauditedProFormaCombinedCondensedFinancialStatements.60
:.';.HOLDING.COMPANYt.EUNAUDITEDPROFORMACOMBINEDCONDENSEDSTATEMENTOFINCOME''Forthe'TwelveMohthsEndedMarch31;1995'Pooling"~"(InMillionsExceptPerShareAmounts)~1BrooklynLILCOUnion>>(Historical)(Historical)4er,,,ProFormaAdJustmenlsProFormaCombinedRevenuesElectric..........~~~~~~~~~~Gas-.,Utilitysales.Gasproductionandother......,..>...,.'otalRevenuesgOperatingExpenses.Operations-fuelandpurchasedpowerMaintenance...Depreciation,depletionandamortization.....,.~;............Basefinancialcomponentamortization...,;..'.............RatemoderationcomponentamortizationRegulatoryliabilitycomponentamortization................Otherregulatoryamortization.OperatingtaxeseFederalincometaxes4TotalOperatingExpenses...,.......,.OperatingIncomeOtherIncomeiIncomeBeforeInterestCharges.........Interest'ChargesNetIncomePreferredstockdividendrequirements$2,440.3546.12,986.4$1,203.454.81,258.2I805.8,388.0,.141.0134.6101.0160.5(88.6)8.0~408.9185.32,244.5741.9493.0324.352.170.9140.7'0.11,121.1137.13.7'46.1788.0140.8485.5'52.7I302.588.152.90.3(0.3)(7)$2,440.31,749.554.8"4,244.61,298.8712.3193.1205.5101.0160.5(88.6).8.0549.6225.43,365.6879.049.8=928.8,538.2~"390.652.9EarningsforCommonStock.AverageCommonSharesOutstanding$249.6$87.8$0.3$337.7117.447.6(23.1)(3)141.9EarningsperCommonandEquivalentShares....$2.13$1.84$-$2.38SeeaccompanyingNotestoUnauditedProFormaCombinedCondensedFinancialStatements.61 NOTESTOUNAUDITEDPROFORMACOMBINEDCONDENSEDFINANCIALSTATEMENTS,,1.Theunauditedproformacombinedcondensedbalancesheet.asofMarch31,1997refiectsthereclassificationof$74.1millionofBrooklynUnionregulatorytaxassetsfromdeferredchargestoregulatoryassets.Allotherfinancialstatementpresentationandaccountingpolicydifferencesareimmaterialandhavenotbeenadjustedintheunauditedproformacombinedcondensedfinancialstatements.2.Transactioncosts(includingfeesforfinancialadvisors,attorneys,accountants,consultants,taxes,filingsandprinting)arecurrentlyestimatedtobeapproximately$54.1million.BothBrooklynUnionandLILCOwillseekPSCapprovalforrecoveryofsuchtransactioncosts.3.TheunauditedproformacombinedcondensedfinancialstatementsrefiecttheconversionofeachshareofLILCOCommonStockoutstandinginto0.803sharesofHoldingCompanyCommonStockandtheexchangeofeachshareofBrooklynUnionCommonStockoutstandingforoneshareofHoldingCompanyCommonStock,asprovidedintheBrooklynUnion/LILCOAgreement.Theunauditedproformacombinedcondensedfinancialstatementsarepresentedasifthecompanieswerecombinedduringallperiodsincludedtherein.'.TheBrooklynUnionearningsforthe12monthperiodendedMarch31,1997includenon-recurringincomeaggregatingapproximately$33.5million,netoftaxes,or$0.68pershare,relatingtogainsontheinitialpublicofferingofasubsidiary'sstockandthesaleofaninvestmentinaCanadianplant.Thisincomewaspartiallyoffsetbya$7.8millioncharge,netoftaxes,or$0.16pershare,relatingtoreorganizationexpensesincurredbythesubsidiary.5.IntercompanytransactionsbetweenBrooklynUnionandLILCOduringtheperiodspresentedwerenotmaterialand,accordingly,noproformaadjustmentsweremadetoeliminatesuchtransactions.6.TheallocationbetweenBrooklynUnionandLILCOandtheircustomersoftheestimatedcostsavingsresultingfromtheCombination,netofthecostsincurredtoachievesuchsavings,willbesubjecttoregulatoryreviewandapproval.Noneoftheestimatedcostsavingsorthecoststoachievesuchsavings,havebeenreflectedintheunauditedproformacombinedcondensedfinancialstatements.7.InconnectionwiththeformationofKeySpan,BrooklynUnionwillredeemitsoutstandingpreferredstockatapremiumof2%pertermsoftheoriginalissuanceagreement.Asaresult,"accountspayablehasbeenadjustedtoreflectapayableof$6.7millionincludingpremiumsof$0.1millionwhichhavebeenchargedtoCommonShareholders'quity.62 THECOMPANYFOLLOWINGTHECOMBINATIONANDTHELIPATRANSACTIONManagementoftheHoldingCompanyHoldingCompanyBoardofDirectors.The,numberofdirectorscomprisingthefull.BoardofDirectorsoftheHoldingCompanyattheEffectiveTimewillbe15persons,sixofwhomwillbedesignatedbyBrooklynUnionpriortotheEffectiveTime,sixofwhomwillbedesignated.byLILCOpriortotheEffectiveTimeandthreeofwhomwillbedesignatedbyacommitteeconsistingoftwocurrentBrooklynUniondirectorsandtwocurrentLILCOdirectors.IntheeventthattheCombinationisnotconsummatedandtheLIPATransactionisconsummated,theBoardofDirectorsoftheHoldingCompanywillconsistoftheDirectorsofLILCOservingimmediatelybeforetheLIPAClosing.SeniorExecutives.Dr.WilliamJ.CatacosinoswillbetheChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommittee'andChiefExecutiveOfficeroftheHoldingCompanycommencingat'theEffectiveTime.AtthefirstanniversaryoftheEffectiveTime,Dr.CatacosinoswillceasetobetheChiefExecutiveOfficer',butwillcontinuetobeChairmanoftheBoardandChairmanoftheExecutive'CommitteeandwillbecomeaconsultanttotheHoldingCompany.IntheeventthattheCombinationisnotconsummatedandtheLIPATransactiotiisconsummated,theaboveprovisionswillnottakeeffectandDr.Catacosinoswillserveinthecapacityreferredtoabove.Mr.RobertB.Catell"willbethePresidentandChiefOperating'OfficeroftheHoldingCompanycommencingupontheconsummationoftheCombinationandwillsucceedDr.CatacosinosasChiefExecutiveOfficeroftheHoldingCompanycommencingonthefirstanniversary'fsuch,date.Thearrangementsto'causesuchelectionstotakeplaceat'suchfirstanniversarymaybealteredonlybyavote,followingtheEffectiveTime,oftwo-thirdsoftheentireBoardofbirectors'ftheHoldingCompany.IommonStockDividendsItisanticipatedthattheinitialannualizeddividendratepaidtoHoldingCompanyshareholdersaftercompletionoftheCombination,whetherornottheLIPATransactionisconsummated,willbe$1.78pershare,subjecttoapprovalanddeclarationby>>theHoldingCompanyBoardofDirectors.BrooklynUnion'sannualdividendrateiscurrently$1.46pershareandLILCO'sannualdividendrateiscurrently$1.78pershare.DeclarationandtimingofalldividendsdeclaredonHoldingCompanyCommonStockwillbeabusinessdecisiontobemadebytheHoldingCompanyBoardfromtimetotimebasedupontheresultsofoperationsandfinancialconditionoftheHoldingCompanyanditssubsidiaries,opportunitiesavailableforthereinvestmentofcashreceivedinconnectionwiththeLIPATransactionorotherwise,andsuchotherbusinessconsiderationsastheHoldingCompanyBoardconsidersrelevantinaccordancewithapplicablelaws.ForadescriptionofcertainrestrictionsontheHoldingCompany'sabilitytopaydividendsontheHoldingCompanyCommonStock,see"DescriptionofHoldingCompanyCapitalStock."DESCRIPTIONOFHOLDINGCOMPANYCAPITALSTOCKGeneralIITheauthorizedcapitalstockoftheHoldingCompany,asoftheEffectiveTime,willconsistof450,000,000sharesofHoldingCompanyCommonStock,parvalue$.01pershare,and100,000,000sharesofpreferredstock,parvalue$.01pershare("HoldingCompanyPreferredStock").ThedescriptionofHoldingCompanycapitalstocksetforthhereindoesnotpurporttobecompleteandisqualifiedinitsentiretybyreferencetotheCertificateof.IncorporationoftheHoldingCompany(the"HoldingCompanyCertificate")andtheBy-LawsoftheHoldingompany(the"HoldingCompanyBy-Laws"),theformsofwhichareattachedheretoasAnnexesGandH,spectively,aswellasapplicablestatutoryorotherlaw.63 HoldingCompanyPreferredStocKUndertheHoldingCompanyCertificate,subjecttoanyapprovaloftheSECwhichmayberequiredundertheHoldingCompanyAct,theBoardofDirectorsoftheHoldingCompanywillbeauthorizedtodividetheHoldingCompanyPreferredStockintoseries,toissuesharesofanysuch'seriesand,withinthelimitationssetforthintheHoldingCompanyCertificateorprescribedbylaw,tofixanddetermine'thevotingrights,ifany,oftheholdersofsharesofsuchseriesandthedesignations,preferencesandrelative,participating,optionalandotherspecialrightsofeachseriesandthequalifications,limitationsandrestrictionsthereof(the"PreferredStockDesignation").TherearenopresentplanstoissueanyHoldingCompanyPreferredStockotherthanasdescribedherein.HoldingCompanyCommonStockTheholdersofHoldingCompanyCommonStockwillbeentitledtoreceivesuchdividendsastheBoardofDirectorsoftheHoldingCompanymayfromtimetotimedeclare,subjecttoanyrightsofholdersofHoldingCompanyPreferredStock,ifanyisissued.,TheholdersofsharesofHoldingCompanyCommonStockwillbeentitledtoonevoteforeachsuchshareuponallproposalspresentedtotheshareholdersonwhichtheholdersofHoldingCompanyCommonStockareentitledtovote.ExceptasprovidedbylawandsubjecttoanyclassorseriesvotingrightsofholdersofanyHoldingCompanySeriesAAPreferredStock,theholdersofHoldingCompanyCommonStockwillhavetheexclusiverighttovotefortheelectionofDirectorsandforallotherpurposes,andholdersofHoldingCompanyPreferredStockwillnotbeentitledtoreceivenoticeofanymeetingofshareholdersatwhichsuchholdersofHoldingCompanyPreferredStockarenotentitledtovote.Theholdersofsharesofaclassorseriesshallbeentitledtovoteandtovoteasaclassupontheauthorizationofanamendmentand,inadditiontotheauthorizationoftheamendmentbyvoteoftheholdersofamajorityofalloutstandingsharesentitledtovotethereon,theamendmentshallbeauthorizedbyvoteoftheholdersofamajorityofalloutstandingsharesoftheclassorserieswhenaproposedamendmentwouldchangetheirsharesunderBCLSection801(b)(11),thatis,changeanyauthorizedshares,whetherissuedorunissued,intoadifferentnumberofsharesofthesameclass.TheholdersofHoldingCompanyCommonStockwillnotbeentitledtcumulatevotesfortheelectionofDirectors.Intheeventofanyliquidation,dissolutionorwindingupoftheHoldingCompany,theholdersofHoldingCompanyCommon,Stock,subjecttoanyrightsoftheholdersofanyHoldingCompanyPreferredStock,willbeentitledtoreceivetheremainder,ifany,oftheassetsoftheHoldingCompanyafterthedischargeofits'liabilities.HoldersofHoldingCompanyCommonStockwillnotbeentitledtopreemptiverightstosubscribefororpurchaseanypartofanyneworadditionalissueofstockorsecuritiesconvertibleintostock.TheHoldingCompanyCommonStockwillnotcontainanyredemptionprovisionsorconversionrights.CertainAnti-TakeoverProvisionstTheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawswillcontainvariousotherprovisionsintendedto(i)promotestabilityoftheHoldingCompany'sshareholderbaseand(ii)rendermoredifficultcertainunsolicitedorhostileattemptstotakeovertheHoldingCompanywhichcoulddisrupttheHoldingCompany,diverttheattentionoftheHoldingCompany'sdirectors,officersandemployeesandadverselyaffecttheindependenceandintegrityoftheHoldingCompany'sbusiness.AsummaryoftheseprovisionsoftheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsissetforthbelow.RemovalofDirectors.TheHoldingCompanyCertificateprovidesthatexceptasotherwiseprovidedfororfixedbyorpursuanttoaCertificateofAmendmentsettingforththerightsoftheholdersofanyclassorseriesofHoldingCompanyPreferredStock,newlycreateddirectorshipsresultingfromany.increaseinthenumberofdirectorsandanyvacanciesontheBoardofDirectorsoftheHoldingCompanyresultingfromdeath,resignation,disqualification,removalorothercausewillbefilledbytheaffirmativevoteofamajorityoftheremainingdirectorstheninoffice,eventhoughlessthanaquorumoftheBoardofDirectorsoftheHoldingCompany,andnotbytheshareholders.SubjecttotherightsofholdersofHoldingCompanyPreferredStbck,anydirectormaberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleastamajorityofthevotin ipowerofalltheoutstandingcapitalstockoftheHoldingCompanyentitledtovotegenerallyintheelectionofdirectors(the"VotingPower"),voting,togetherasasingleclass.:TheNYBCLprovidesthatunlessthecertificateofincorporationorby-lawsofacorporationsoprovide,adirectormayberemovedonlyforcausebyvoteofthe'shareholders.NoneoftheRestatedCertificateof.IncorporationofBrooklynUnion,asamended(the"BrooklynUnionCertificate,")theBy-LawsofBrooklynUnion(the"BrooklynUnionBy-Laws,")theLILCOAmendedandRestatedCertificateof.Incorporation(the"LILCOCertificate")ortheBy-LawsofLILCO,asamended(the"LILCOBy-Laws")containsprovisionsforremovalofadirector.fSpecialShareholders'eetingsandRighttoActByWrittenConsent.TheHoldingCompanyCertificate,and'theHoldingCompanyBy-LawsprovidethataspecialmeetingofshareholdersmaybecalledonlybyaresolutionadoptedbyamajorityoftheentireBoardofDirectorsoftheHoldingCompany.Shareholdersarenot,permit'tedtocall,ortorequirethattheBoardofDirectorscall,aspecialmeetingofshareholders.Moreover,thebusinesspermittedtobeconducted-atanyspecialmeeting-'f,shareholdersislimitedtothebusiness'brought'eforethemeetingpursuanttothenoticeofthemeetinggivenbytheHoldingCompany.TheHoldingCompanyBy-LawspermitaspecialmeetingofshareholderstobecalledatanytimeforanypurposebyorderoftheBoardofDirectorsoftheHoldingCompany.Inaddition,theHoldingCompanyCertificateprovides-thatanyactiontakenby.theshareholdersof'theHoldingCompanymustbeeffectedatanannualorspecialmeetingofshareholdersandmaynotbetakenbywrittenconsentinlieuofameeting..-4LITheprovisionsoftheHolding,CompanyCertificate,andthe,E3oldingCompanyBy-Lawsprohibitingshareholderactionbywrittenconsentmayhavetheeffectofdelayingconsiderationofashareholderproposaluntilthenextannualmeeting.TheseprovisionswouldalsopreventtheholdersofamajorityoftheVotingPowerfromunilaterallyusingthewrittenconsentproceduretotakeshareholderaction.Moreover,ashareholdercouldnotforceshareholderconsiderationofaproposalovertheoppositionoftheBoardofDirectorsoftheHoldingCompanybycallingaspecialmeetingofshareholderspriortothetimetheBoardbelievessuchconsiderationtoeappropriate;ProceduresforShareholderNominationsandProposals.,TheHoldingCompanyBy-Lawsestablishanadvancenoticeprocedureforshareholderstonominatecandidatesforelectionasdirectorsortobring.otherbusinessbeforemeetingsofshareholdersoftheHoldingCompany(the"ShareholderNoticeProcedure").OnlythoseshareholdernomineeswhoarenominatedinaccordancewiththeShareholderNoticeProcedurewillbeeligibleforelectionasdirectorsoftheHoldingCompany.UndertheShareholderNoticeProcedure,noticeofshareholdernominationstobemadeatanannualmeeting(orofanyotherbusinessthatmayproperlybebroughtbeforesuchmeeting)mustbereceivedbytheHoldingCompanynotlessthan60daysnormorethan90dayspriortothefirstanniversaryofthepreviousyear',sannualmeeting(or,ifthedateoftheannualmeetingismorethan30.daysbeforeormorethan60daysaftersuchanniversarydate,not,earlierthanthe90thdaypriortosuchmeetingandnotlaterthanthelaterof(i)the60thdaypriortosuchmeetingor(ii)the10thdayafterpublicannouncementofthedateof,suchmeetingisfirstmade).Notwithstandingtheforegoing,intheeventthatthenumberofdirectorstobeelectedisincreasedandthereisnopublicannouncementnamingallofthenomineesfordirectororspecifyingthesizeoftheincreasedBoardofDirectorsmadebytheHoldingCompanyat,least70dayspriortothefirstanniversaryoftheprecedingyear'sannualmeeting;ashareholder'snoticewillbetimely,butonlywithrespecttonomineesforanynewpositionscreatedbysuchincrease,ifitisreceivedbytheHoldingCompanynotlaterthanthe10thdayaftersuchpublicannouncementisfirstmadebytheHoldingCompany.kHITheHoldingCompanyBy-Lawsprovidethatonlysuchbusinessmaybeconductedataspecialmeetingasisspecifiedinthenoticeofmeeting.NominationsforelectiontotheHoldingCompanyBoardmaybemadeataspecialmeetingatwhichdirectorsaretobeelectedonlybyorattheHoldingCompanyBoardofDirectors'rectionorbyashareholderwhohasgiventimelynoticeofnomination.UndertheShareholderNoticerocedure,suchnoticemustbereceivedbytheHoldingCompanynotearlierthanthe90thdaybeforesuch65 meetingandnotlaterthanthelaterof(i)the60thdaypriortosuchmeetingor(ii)the10thdayafterpublicannouncementbytheHoldingCompanyofthedateofsuchmeeting.Shareholderswillnotbeabletobringotherbusinessbeforespecialmeetingsofshareholders.'IkTheShareholderNoticeProcedureprovidesthatatanannualmeetingonlysuchbusinessmaybeconductedashasbeenbroughtbeforethemeetingatthedirectionoftheHoldingCompanyBoardofDirectorsorbyashareholderwhoh'asgiventimelywrittennotice(assetforthabove)totheSecretaryoftheHoldingCompanyofsuchshareholder'sintentiontobringsuchbusinessbeforesuchmeeting.UndertheShareholderNoticeProcedure,ashareholder'snoticetotheHoldingCompanyproposingtonominateanindividualforelectionasadirectormustcontaincertaininformation,including,withoutlimitation,theidentityandaddressofthenominatingshareholder,theclassandnumberofsharesofstockoftheHoldingCompanyownedbysuchshareholder,andallinformationregardingtheproposednomineethatwouldberequiredtobeincludedinaproxystatementsolicitingproxiesfortheproposednominee.UndertheShareholderNoticeProcedure,ashareholder'snoticerelatingtotheconductofbusinessotherthanthenominationofdirectorsmustcontaincertaininformatioriaboutsuchbusinessandabouttheproposingshareholder,includingwithoutlimitation,abriefdescriptionofthebusinesstheshareholderproposestobringbeforethemeeting,thereasonsforconductingsuchbusinessatsuchmeeting,thenameandaddressofsuchshareholder;theclassandnumberofsharesofstockoftheHoldingCompanybeneficiallyownedbysuchshareholder;andanymaterialinterestofsuchshareholderinthebusinesssoproposed.IftheChairmanorotherofficerpresidingatameetingdeterminesthatanindividualwasnotnominated,orotherbusinesswasnotbroughtbeforethemeeting,inaccordancewiththeShareholderNoticeProcedure,suchindividualwillnotbeeligibleforelectionasadirector,orsuchbusinesswillnot'beconductedatsuchmeeting,as'thecasemaybe.1Byrequiringadvancenoticeofnominationsbyshareholders,theShareholderNoticeProcedurewillaffordtheHoldingCompanyBoardofDirectorsanopportunitytoconsiderthequalificationsoftheproposedn'omineesand,totheextentdeemednecessaryordesirablebytheHoldingCompanyBoard,toinformshareholdersaboutsuchqualifications.Byrequiringadvancenoticeofotherproposedbusiness,theShareholderNoticeProcedurewillprovideamoreorderlyprocedureforconductingannualmeetingsofshareholdersand,totheextentdeemednecessaryordesirablebytheHoldingCompanyBoard,willprovidetheHoldingCompanyBoardwithanopportunitytoinformshareholders,priortosuchmeetings,ofanybusinessproposedtobeconductedatsuchmeetings,togetherwiththeHoldingCompanyBoard'spositionregardingactiontobetakenwithrespecttosuchbusiness,sothatshareholderscanbetterdecidewhethertoattendsuchameetingortograntaproxyregardingthedispositionofanysuchbusiness.AlthoughtheHoldingCompanyBy-LawsdonotgivetheHoldingCompanyBoardanypowertoapproveordisapproveshareholdernominationsfortheelectionofdirectorsandonlylimitedpowertoapproveordisapproveshareholderproposalsforaction,theymayhavetheeffectofprecludingacontestfortheelectionofdirectorsortheconsiderationofshareholderproposalsiftheproperproceduresarenotfollowed,andofdiscouragingordeterringathirdpartyfromconductingasolicitationofproxiestoelectitsownslateofdirectorsortoapproveitsownproposal,withoutregardtowhetherconsiderationofsuchnomineesorproposalsmightbeharmfulorbeneficialtotheHoldingCompanyanditsshareholders.*AmendmentoftheHoldingCompanyCertigcateandtheHoldingCompanyBy-Laws.TheHoldingCompanyCertificateprovidesthattheaffirmativevoteofatleast80percentoftheVotingPower,votingtogetherasasingleclass,wouldberequiredto(i)amendorrepealtheprovisionsoftheHoldingCompanyCertificatewithrespectto(A)theelectionofdirectorsand(B)therighttocallaspecialshareholders'eetingand(C)therighttoactbywrittenconsent;(ii)adoptanyprovisioninconsistentwithsuchprovisions;and(iii)amendorrepealtheprovisionsoftheHoldingCompanyCertificatewithrespecttoamendmentstotheHoldingCompanyCertificateortheHoldingCompanyBy-Laws.66 THEAMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEANDMERGERThefollowingisasummaryofthematerialtermsoftheBrooklynUnion/LILCOAgreeinent,whichisattachedas.AnnexAandisincorporatedhereinbyreference.SuchseminaryisqualifiedinitsentiretybyreferencetotlieBrooklynUnion/LILCOAgreement.IntheeventthattheKeySpanShareExchangehasbeenconsummated,thenKeySpanwillbesubstitutedforBrooklynUnionintheCombinationandtheBrooklynUnion/LILCOAgreement.LPTheCombinationTheBrooklynUnion/LILCOAgreementprovidesthat,followingitsadoptionbytheshareholdersofbothLILCOandBrooklynUnionandthesatisfactionorwaiveroftheotherconditionstotheCombination,includingobtainingtherequisiteregulatoryapprovals,theoutstandingsharesofLILCOCommonStockwillbeexchangedfornewlyissuedsharesofHoldingCompanyCommonStockintheShareExchangeandtheoutstandingsharesofBrooklynUnionCommonStockwillbeconvertedintotherighttoreceivenewlyissuedsharesofHoldingCompanyCommonStockintheMerger.EffectsoftheCombinationExceptasprovidedbelow,upontheconsummationoftheShareExchange,andwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnionortheHoldingCompany:'i.Eachissuedan'doutstandingshareofLILCOCommonStock,otherthansharesheldbydissenting'hareholders("LILCODissentingShares"),willbeexchangedfor0.803sharesofHoldingCompanyCommonStock;providedthatiftheLIPAAgreementhasnotbeenterminatedbutthetransactionscontemplatedtherebywillnotbeconsummatedcontemporaneouslywiththeCombination,theneachissuedandoutstanding'shareofLILCOCommonStock,othertharttheLILCODissentingShares,willbeexchangedfor0.803sharesofHoldingCompanyCommonStockand,ifthetransactionscontemplatedbytheLIPAAgreementareconsummatedwithintwoyearsoftheEffectiveTime,thentheHoldingCompanywillissuetopersonswhowereholdersofrecordofLILCOCommonStockattheEffectiveTimeanadditional0.077sharesofHoldingCompanyCommonStock(the"ContingentIssuance")inrespectofeachshareofLILCOCommonStock,otherthanLILCODissentingShares,thathadbeenheldbythemofrecordattheEffectiveTime.UpontheShareExchange,theHoldingCompanywillbecometheownerofeachshareofLILCOCommonStocksoexchangedandeachsuchshareofLILCOCommonStockwillbedeemedtohavebeenexchangedforthatfractionofashareofHoldingCompanyCommonStockspecifiedabove.ii.'achissuedandoutstandingshareofthepreferredstockofLILCOwillbeunchangedasaresultoftheShareExcliangeandwillremainoutstandingthereafter.AlUpontheconsummationoftheMerger,andwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnionortheHoldingCompany,eachissuedandoutstandingshareofBrooklynUnionCommonStock,otherthansharesheldbydissentingshareholders("BrooklynUnionDissentingShares"),willbe'convertedintotherighttoreceiveoneshareofHolding-CompanyCommonStockpursuanttotheMerger.UponsuchMerger,BrooklynUnionwillbecomeawhollyownedsubsidiaryoftheHoldingCompanyandeachsuchshare'ofBrooklynUnionCommonStockwillbedeemedtohavebeenexchangedforoneshareofHoldingCompanyCommonStock.IftheCombinationandtheLIPATransactionareconsummatedcontemporaneouslyoriftheLIPATransactionisconsummatedbeforetheCombination,theninsteadofconsummatingtheShareExchange,thetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementandtheLIPAAgreementwillbeconsummatedasfollows:t(i)LILCOwilltransfertheTransferredAssets(asdefinedintheLIPAAgreement)tosuchsubsidiariesoftheHoldingCompanyasBrooklynUnionandLILCOwilldirectinexchangefortheDesignated67 Number(asdefine)of.sharesof.HoldingCompanyCommonStockandupto$75.millionlfaceamountofHoldingCompanyPreferredStock.The"DesignatedNumber"willbethenumberofsharesofHoldingCompanyCommonStockrepresentingthenetfairmarketvalueoftheTransferredAssets,aswillbedeterminedingoodfaithbyBrooklynUnionand'LILCO,'essthefaceamount'ofsuchHolding\CompanyPreferredStock;(ii)themergerofLIPASubwithandintoLILCOandthetransactionscontemplatedbytheLIPAAgreementwillbeconsummated,andtheCashPurchasePrice(asdefined)willbepaidtotheExchangeAgentasagentfortheholdersofLILCOCommonStocktosubscribeforandpurchaseanumberofsharesofHoldingCompanyCommonStock,whichnumberofsharesWhen'addedtotheDesignatedNumbershallrepresentthenumberof-sharesofLIL'CO'CommonStockissuedandoutstandingimmediately'priortotheLILCOEffectiveTime,otherthanLILCODissenting,Share's,multipliedbytheLIPARatio(i.e.,0.880);and(iii)"promptlythereafter;theMergersh'allbeconsummated.t"BrooklynUnionDissentingSharesandLILCODissentingShareswillnotbeconvertedintotherighttoreceiveHoldingCompanyCommonStockpursuanttotheBrooklynUnion/LILCOAgreement,butwillbeconvertedintosuchconsiderationasmaybeduewithrespecttosuchsharespursuanttotlieapplicableprovisionsoftheNYBCL.IAssoonaspracticableaftertheconsummationoftheCombination,anexchangeagentmutuallyagreeabletoLILCOandBrooklynUnion(the"Exchange.Agent")willmailtoeach,holderofrecordofa.certificate(a"Certificate")whichimmediatelypriortheretorepresentedoutstandingsharesofLILCOCommon,StockorwhichimmediatelypriortheretorepresentedoutstandingsharesofBrooklynUnionCommonStock(the",ExchangedShares")thatwerecancelledorexchangedfor,sharesofHoldingCompanyCommonStock,aletteroftransmittalandinstructionsforuseineffectingthe.surrender,ofsuchCertificateinexchangeforcertificatesrepresentingsharesofHoldingCompanyCommonStock.,;...'Ii'Uponsurrenderofa'CertificatetotheExchangeAgent,togetherwithaduly'xecutedletterofIransmittalandsuchotherdocuments,ifany,asthe'ExchangeAgentshallrequire,the,holderofsuchCertifi'catewillbeentitledtoreceiveacertificaterepresentingthatnumberofwholesharesofHoldingCompanyCommonStockandanycashinlieuofafractionalshareofHoldingCom'panyCommonStockwhichsuchholderhastherighttoreceivepursuanttothe'BrooklynUnion/LILCOAgreement.Nofractionalsharesof.HoldingCompanyCoinmonStockwillbeissuedinconnectionwiththeCombinationortheLIPATransaction.Foreachfractionalsharethat'wouldotherwisebeissued,'he'ExchangeAgentwillpay.,anamountequalto,aprorataportionoftheproceedsofthesale,bytheExchangeAgentofsharesofHoldingCompanyCommonStockrepresentingtheaggregate,ofall,suchfractionalshares,suchpaletobeexecutedbytheExchangeAgentaspromptlyaspossibleaftertheEffectiveTime.llIIIfatransfer.ofownershipofExchangedShares.isnotregisteredin,thetransferrecords-of~LILCO,orBrooklynUnion,asthecase,maybe,andifthetransferee,presentstotheExchangeAgent:.(i)theCertificaterepresentingsuchExchangedShares,(ii)alldocumentsrequiredtoevidenceandeffectsuchtransfer,and.(iii)evidencesatisfactoryto,theExchangeAgentthatany-applicable,stocktransfertaxeshavebeen,paid,thenacertificaterepresentingthepropernumberofsharesofHoldingCompany,CommonStockmaybeissuedtosuchtransferee.~ttti.Untilsurrendered,eachCertificatewillbedeemedatanytimeaftertheEffectiveTimetorepresentonlytherighttoreceiveuponsuchsurrenderthe.certificaterepresentingtheapplicablenumber.ofsharesofHoldingCompanyCommonStockandcashinlieuofanyfractionalshareofHoldingCompanyCommonStock.NodividendsorotherdistributionsdeclaredormadeaftertheEffectiveTimewithrespecttosharesofHoldingCompanyCommonStockwitharecorddateaftertheEffectiveTimewillbepaid'tothe'holderofanyunsurrenderedCertificate,andnocashpaymentinlieuoffractionalshareswillbepaidtoanysuchholderuntil68 uchCertificateissurrendered.Aftersuchsurrender,subjecttoapplicablelaw,therewillbepaidtosuchholder,withoutinterest,theunpaiddividendsanddistributions,andanycashpaymentinlieuofafractionalshare,towhichsuchholderisentitled.IfthetransactionscontemplatedbytheLIPAAgreementareconsummatedwithintwoyearsoftheEffectiveTime,thenthe'ExchangeAgentwillmailtoeachholderofrecordofCertificateswhichimmediatelypriortotheEffectiveTimerepresentedoutstandingshares'ofLILCOCommonStockthatwere'exchangedforHoldingCompanyCommonStockincompliahce'withtheissuanceproceduresdescribeabovecertificates'orthenumberof'wholesharesofHoldingCompa'nyCommonStockwhichsuchholderhas'therighttoreceivepursuanttotheContingentIssuance".Nodividendsorotherdistributionsdeclaredormadeafter'theEffectiveTimewithrespecttosharesofHoldingCompanyCommonStockwitharecorddateaftertheEffectiveTimeandpriortotheconsummationofthetransactionscontemplatedbytheLIPAAgreementwillbepaidinrespectofsharestobeissuedpursuanttotheContingentIssuance.Theproceduresdescribedabovewithrespecttofractionalshareswillbeemployedwithrespect,tosharestobeissuedpursuanttotheContingentIssuance.IFromandafterthe.consummationoftheCombination,thecommonstocktransferbooksofJ.ILCOandBrooklynUnionwillbeclosedandnotransferofanyLILCOCommonStockorBrooklynUnionCommonStockwillthereafterbemade.If,aftertheconsummationoftheCombination,CertificatesarepresentedtotheHoldingCompany,theywillbecancelledand'exchangedforcertificate'srepresentingtheappropriatenumberofsharesofHoldingCompanyCommonStock.*rHOLDERSOFLILCOCOMMONSTOCKANDBROOKLYNUNIONCOMMONSTOCKSHOULDNOTSENDINTHEIRSTOCKCERTIFICATESUNTIL'WHEYRECEIVEALETTEROFTRANSMITTAL.epresentationsandWarranties~~TheBrooklynUnion/LILCOAgreementcontainscustomaryrepresentations'andwarrantiesbyeachofBrooklynUnionandLILCOrelatingto,amongotherthings:(a)theirrespectiveorganizations,theorganizationoftheirrespectivesubsidiariesandsimilarcorporatematters;(b)theirrespectivecapitalstructures;(c)authorization,execution,delivery,performanceandenforceabilityoftheBrooklynUnion/LILCOAgreementandrelatedmatters;(d)requiredgovernmentalandregulatoryapprovals;(e)theircompliancewithapplicablelawsandagreements;(f)reportsandfinancialstatementsfiledwiththeSEC,FERCandNRCand,theaccuracyofinforniatioitcontained,therein;(g)theabsenceofanymaterialadverseeffectontheirbusiness,assets,financialcondition,resultsofoperationsorprospects;(h)theabsenceofadversematerialsuits,claimsor,proceedings,andotherlitigationissues;(i)theaccuracyofinformationsuppliedbyeachofLILCOandBrooklynUnionforu'seinthisJointProxyStatement/Prospectus;(j)taxmatters;(k)retirementandotheremployeebenefitplansandmattersrelatingtotheEmployeeRetirementIncomeSecurityActof1974,asamended("ERISA");(l)labormatters;(m)compliancewithallapplicableenvironmentallaws,possessionofallmaterialenvironmehtal,health,andsafetypermitsandotherenvironmentalissues;(n)theregulationofBrooklynUnionandLILCOandtheirsubsidiariesaspublicutilities;(o)theshareholdervote,requiredfortheadoptionoftheBrooklynUnion/LILCOAgreement(assetforthinthisJointProxyStatement/Prospectus)beingtheonlyvoterequiredtoadopttheBrooklynUnion/LILCOAgreementandthetratisactionscontemplatedthereby;(p)that,exceptascontemplatedintheBrooklynUnion/LILCOAgreementortheLIPAAgreement,neitherBrooklynUnionnorLILCOoranyoftheirrespectiveaffiliateshavetakenoragreedtofakeanyactionthatwouldpreventtheHoldingCompanyfroinaccountingforthetransactionstobeeffectedpursuanttotheBrooklynUnion/LILCOAgreement'sapoolingofinterests;(q)theinapplicabilityofcertainprovisionsofNewYorklawrelatingtobusinesscombinations;(r)thedeliveryoffairnessopinionsbyMerrillLynch,inthecaseofBrooklynUnion,andDillonead,inthecaseofLILCO;(s)themaintenanceofvalidandenforceableinsurancepolicieswithfinanciallysponsibleinsurers;(t)theabsenceofownershipofeachother'sstock;and(u)theabsenceofanymaterial69 impairmenttotheHoldingCompany'sabilitytorealizethebusinesssynergiesdescribedinthejointpressreleaseissuedinconnectionwiththeannouncementoftheBrooklynUnion/LILCOAgreement.CertainCovenantstPursuanttotheBrooklynUnion/LILCOAgreement,eachofLILCOandBrooklynUnionhasagreedthat,duringtheperiodfromthedateoftheOriginalAgreementuntiltheconsummationoftheCombination,exceptaspermittedbytheBrooklynUnion/LILCOAgreement,theStockOptionAgreements,theKeySpanExchangeAgreement,theLIPAAgreementandtheHedgeArrangements(asdefinedbelow),orasotherwiseconsentedtoinwritingbytheotherpartiesandsubjecttocertainexceptionsspecifiedintheBrooklynUnion/LILCOAgreement,eachmill(andeachofitssubsidiarieswill),amongotherthings:(a)carryonits.businessintheordinarycourseconsistentwithpriorpractice;(b)notdeclareorpayanydividendsonormakeotherdistributionsinrespectofanyofitscapitalstockotherthan(i)tosuchparty'oritswholly-ownedsubsidiaries,(ii)dividendsrequiredtobepaidonanypreferredstock,and(iii)regularquarterlydividendstobepaidonLILCOCommonStockandBrooklynUnionCommonStocknottoexceed103%ofthedividendsforthepriorfiscayear;(c)noteffectcertainotherchangesinitscapitalizationotherthanredeemingoutstandingLILCOpreferredstockasrequiredbytheirtermsandBrooklynUnionpreferredstock,inaccordancewiththeirterms;(d)notissueorencumberanycapitalstock,rights,warrants,optionsorconvertibleorsimilarsecurities;(e)inthe'ase'ofLILCOorBrooklynUnion,notamenditscertificateofincorporation,by-lawsorotherorganizationaldocuments;(f)notacquireasubstantialinterestinanyotherentity;(g)notmakeanycapitalexpendituresinexcessof110%oftheamountbudgetedorscheduledbysucpartyforcapitalexpenditures;(h)notsell,lease,encumberorotherwisedisposeofmaterialassets,otherthanintheordinarycourseofbusiness;(i)notincurindebtedness(orguaranteesthereof),otherthaninconnectionwiththerefundingofexistingindebtedness;(j)notenterinto,adoptoramendorincreasetheamountoracceleratethepaymentorvestingofanybenefitoramountpayableunder,anyemployeebenefitplanorotheragreement,commitment,arrangement,'lanorpolicy,exceptfornormalincreasesintheordinarycourseofbusinessconsistentwithpastpractice'hat,intheaggregate,donotresultinamaterialincreaseinbenefits;"(k)notenterintooramendanyspecialarrangementwithrespecttotheterminationofemploymentorothersimilarcontract,agreementorarrangementwithanydirector,officeroremployeeotherthanintheordinarycourseofbusinessconsistentwithpastpractice;~(1)notcommenceconstructionoforobligateitselftopurchaseanyadditionalelectricgenerating,"transmissionordeliverycapacity,exceptasbudgeted;(m)nottakeanyactionwhichwouldpreventtheHoldingCompanyfromaccountingforthetransactionstobeeffectedpursuanttotheBrooklynUnion/LILCOAgreementasapoolingofinterests;(n)nottakeanyactionwhichwouldadverselyaffectthestatusoftheMergerasatax-freetransactiontoBrooklynUnioncommonshareholdersand,unlesstheLIPAAgreementhasbeenterminated,theShareExchangeasataxabletransactiontotheLILCOcommonshareholders,ortocausetheformationoftheHoldingCompanytobeatransactiontowhichSection351oftheCodedoesnotapply;(o)notifytheotherpartiesofanychangesinitsratesorcharges(otherthanpass-throughfuelandgasratesocharges)orstandardsofserviceoraccounting;andnotmakeanyfilingtochangeitsratesonfilewiththePSCth70
~~~~iIi'wouldhaveamaterialadverseeffectonthebenefitsassociated,withthe.transactionsco'ntemplatedbythe"'iBrooklyn'Union/LILCOAgreement;and""(p)'ottakea'yaetio'n'that'islikely-tojeopardizethe'qualificationofLILCO'sor'BroomynUnion's''utstaridingrev'enuebonds'astax-exemptmdustrial'developmentbonds.'ndemnification,'The.BrooklynUnion/LILCOAgreementprovidesthat;,totheextent,ifany,notprovidedby,anexisting.rightofindemnificationorother.agreementorpolicy,fromandaftertheconsummationoftheCombination,'theHoldingCompanyshall,tothefullestextentpermittedbyapplicablelaw,indemnify,defendandholdharmlesseachpersonwho,wasat,or,who,hadbeenatany.timeprior,toDecember,29,1996,orwho,becomespriortotheEffectiveTime,anofficer,,director,oremployee,,of,any:of,the,partiestheretoor,any>of'theirrespecttvesubsidiariesagainstalllosses,expenses(includingreasonableattorney'sfees,andexpenses),claims,;damagesorliabilities,or;subjecttotheHoldingCompanyprovidingitswritteconsentfor,any,settlementwhichshall-notbeunreasonablywithheld,amountspaidinsettlement;arising,out,-ofactions,oromissionsoccurringatorpriortotheconsummationoftheCombination(andwhetherassertedor,claimedprior,to,atoraftertheconsummationoftheCombination)thatare,,in,whole,.orinpart,,based'on,or,arising,outofthefactthatpuchperson,isorwasa,.director,officerhoiemployeeofsuchparty,and:allsuchindemnifiedliabilities"totheextentthey.arebasedonorariseoutof.orpertainto,thetransactions,contemplatedbythe~BrooklynUnion/LILCOAgreement,,,Ia~IEIInaddition,theBrooklynUnion/LILCOAgreementrequiresthatforaperiodofsixyearsaftertheconsummationoftheCombination,theHoldingCompany(anditssuccessorsandassigns)shallmaintainineffectpoliciesofdirectors'ndofficers'iabilityinsuranceasmaintainedbyBrooklynUnionand'LILCOforthebe'nefi'tEof.thosepersons(andtheirheirsorrepresentatives)whoarecoveredbysuchpoliciesat,December29,1996,oratanytimesubsequenttheretoandpriortotheEffectiveTime,ontermsno,lessfavorablethantheterms,of,thethenexistinginsurancecoverage.IIIAlso,theBrooklynUnion/LILCOAgreementprovidesthattothefullestextentpermittedbylaw,fromandaftertheconsummationoftheCombination,'llrightstoindemnificationexistingin'favoroftheemployees,agents,directorsand'officersofBrooklynUnion',LILCOand'theirrespective"subsidiarieswithres'pecttotheir'ctivitiesassuchprioitotheconsummation',oftheCombination,aspiovided'intheirrespectivecertificates*ohfincorporationandby-lawsineffectonDecember'29,1996,orothherwiseineffectonDecember29,.1996,willsurvivetheCombinationandwillcontinueinfullforceandeffectfor5peri'oJofnot'lessthansixyear'sfromtheconsummationoftheCombination.I4~'EIi44"1'EmploymentandEWorkforceMattersEmplayee.Agreements.TheBrooklynUnion/LILCOAgreement,providesthattheHoldingCompanyanditssubsidiariesmusthonorallcontracts,agreements,collectivebargainingagreementsandcommitmentsoftheparties.madebeforeDecember29,1996whichapplytoanycurrentorformer,directproremployeeofthepartiesthereto.~4II'I4I..HoldingCompany'BoardofDirectois.ThenumberofdirectorscomprisingthefullBoardofDirectorsoftheHoldingCompany,upontheconsummationoftheCombinationwillbe15persons,sixofwhomwillbedesignatedbyBrooklynUnionpriortothec'onsummatiqnoftheCombination,sixofwhomwillbedesignatedbyLILCOpriortotheconsummationoftheCombinationaiidthreeofwhom'willbe'designatedbya'committeeconsistingoftwocurrentBrooklynUniondirecto'rsandtwocuirentLILCOdirectors.'SeniorExecutives.Dr.,Catacosinos.willbetheChairmanof.theBoardofDirectors,ChairmanoftheExecutive-CommitteeandChief.ExecutiveOfficeroftheHoldingCompanycommencingattheEffectiveTime.AtthefirstanniversaryoftheconsummationoftheCombination,Dr.Catacosinos.willceasetobetheChiefxecutiveOfficer,butwillcontinuetobeChairmanoftheBoardandChairmanofthe,ExecutiveCommitteeandillbecomeaconsultanttotheHoldingCompany.71 Mr.CatellwillbethePresidentandChiefOperatingOfficeroftheHoldingCompanycommencingupontheconsummationoftheCombinationandwillsucceedDr.CatacosinosasChiefExecutiveOfficeroftheIHoldingCompanycommencingonsuchfirstanniversary.Thearrangementstocausesuchelectionstotakeplaceatsuchfirstanniversarymaybealteredonlybyavote,followingtheconsummation,oftheCombination,oftwo-thirdsoftheentireBoardofDirectorsoftheHoldingCompany.IntheeventthattheMergerisnotconsummated,theprovisiondescribedintheprecedingparagraphwillnottakeeffectand-Dr.CatacosinoswillcontinuetoserveasChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheHoldingCompany.TheHoldingCompanywillenterintoemploymentagreementswitheachofDr.CatacosinosandMr.CatelleffectiveupontheconsummationoftheCombinationprovidingforeachofthemtoassumethe'specifiedpositions:Dr.CatacosinoswillserveasaconsultanttotheHoldingCompanyforafive-yearperiodcommencingafterheceasesbeingChiefExecutiveOfficer,andMr.CatellwillserveasChiefExecutiveOfficerforafour-yearperiodcommencingonthefirstanniversaiyoftheconsummationoftheCombination.Eachofthemistoreceivecompensation(including'certainincentivecompensationrelatedtoachievingthesyne'rgiescontemplatedtoberealizedfromtheCombination)ontermsmutuallyagreedtoandinanyeventinanamountnotlessthanwhat'achreceivedas"ofDecember29,1996aswellasreasonableincreases,andotherwisecontainingtermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.iN'iStockandBenefitPlansEachofthebenefitplansofBrooklynUnionandLILCOineffectasofDecember29,1996willbecontinuedfortheemployeesorformeremployeesofBrooklynUnionanilLILCOandanyoftheirsubsidiarieswhoarecoveredbysuchplansimmediatelypriortothedateoftheclosingoftheCombination(the"Closin'gDate"),untiltheHoldingCompanyotherwis'edeterminesaftertheconsummationoftheCombination(subjectoanyreservedrightcontainedinanysuchbenefitplan)toamend,modify,suspend,revokeorterminatesuchplan.Totheextentthatnoduplicationofbenefitorfundingresults,eachparticipantinanysuchbenefitplanwillreceivecreditforpurposesofeligibilitytoparticipate,vesting,benefitaccrual'andeligibilitytoreceivebenefitsunderanybenefitplanoftheHoldingCompanyoranyofits,subsidiariesoraffiliatesforservicecreditedforthecorrespondingpurposeundersuchbenefitplans.UpontheconsummationoftheMerger,LILCOandBrooklynUnionwilltakeallactionrequiredtoterminatetheirrespectiveemployeestockoption,stockpurchaseandothersimilarstockplansand:(i)eachshareofBrooklynUnionCommonStockorLILCOCommonStockhelduriderBrooklynUnion'sorLILCO'sDividendReinvestmentandStockPurchasePlansorBrooklynUnion'sEmployeeSavingsPlan,DiscountStockPurchasePlanforEmployeesandLong-TermPerformanceIncentiveCompensationPlan(collectively,the"BrooklynUnionPlans")orJ.ILCO'sEmployeeStockPurcliasePlan,RetainerPlan,IncentivePlanandStockPlan(collectively,the"LILCOPlans")immediatelypriortothe'consummationoftheMergerortheShareExchange,asthecasemaybe,willbeautomaticallyexchangedfortheapplicablenumberofsharesofHoldingCompanyCommonStock,whichshareswillbeheldunderandpursuanttoBrooklynUnion'sorLILCO'sDividendReinvestmentandStockPurchasePlansorbeissuedundersuchBrooklynUnionPlanorLILCOPlan,asthecasemaybe;and(ii)upontheconsummationoftheMerger,eachunexpiredandunexercisedoptiontopurchasesharesofBrooklynUnionCommonStockundertheLong-TermPerformanceIncentiveCompensationPlan,whethervestedorunvested,willbeautomaticallyconvertedintoanoptiontopurchaseanumberofshares-ofHoldingCompanyCommonStockequaltothenumberofsharesofBrooklynUnionCommonStockwhichcouldhavebeenpurchasedimmediatelypriortotheconsummationoftheMerger(assumingfullvesting)undersuchoption,atapricepershare:ofHoldingCompanyCommonStockequaltothepershoptionexercisepricespecifiedinsuchoption.72
~~NoSolicitationofTransactionsThe'BrooklynUnion/LIL'COAgreementprovidesthatno'partytheretowill,andeachsuchpartywill'caus'eitssubsidiariesnotto,andeachsuchpartywillnotperniit'any'ofits"officers,directors,employees,accountants,counsel,investmentbankers,firiancial"advisorsandoth'errepresentativ'es(collectively,'"Rep'resentatives")to',andeachsuchpartywilluseitsbesteffortstocausesuchp'ersonsn'o*ttb,directly'or'indirectlymitiate,solicitorencourag'e,ortakeanyactiontofacilitatethemakingof'anyofferorpioposalwhichc'onstitutesorisreasonablylikelytoleadto,anyBusinessCombinationProposal(as'definedbelow);or,in'heeventofan"unsolicitedBusinessCombinationProposal,excepttotheextentrequiredbytheirfiduciary'utiesunder'applicablelawif'so'dvisedinawrittenopinionofoutside"'counsel,en'gageinnegotiationsorprovideanyinformatio'n"ordatatoanypersonrelatingtoanyBusinessCombmationProposal.Asusedabove,"BusinessCombinationProposal"meansanytenderor"exchange'offer,proposalforamerger,consolidationorotherbusinesscombinationinvolving'anyparty'to'the'BrooklynUnion/LILCOAgreementoranyofitsmaterialsubsidiaries,or'anyproposaloroffer(ineachcase,whetherornotinwritingandwhetherornotdelivered-totheshareholdersofapartygenerally)toacquireinanymanner,directly'orindirectly,asubstantialequityin'terestinorasubstaritialportionoftheassets,ofanypartytotheBrooklynUnion/LILCOAgreement'oranyofitsmaterialsubsidiaries,otherthanpursuanttothetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementandbytheLIPAAgreement.'"'<<'''~TheBrooklynUnion/LILCOAgreementprovidesthatuntiltheterminationorconsummationofthetransactionscontemplatedbytheBrooklynUnion/I.IL'COAgreement,no'party'mayengageinanynegotiationsormaterial'discussionswithLIPAoritsrepresentativesoragentswithoutpriornotificationtoorthepresenceoftheotherparties,andwillnotprovideanyinformationordatatoLIPAwithoutprovidingacopythereoftotheotherparties.NothingcontainedintheBrooklynUnion/LILCOAgreementwillprohibitapartyfromtakinganddisclosingtoifsshareholdersapositioncontemplatedby"Rule,14e-2(a)undertheSecuritiesExchangeActof1934,asamended,withrespecttoaBusinessCombinationProposalbymeansofatenderoffer'.''g1AdditionalAgreementsIOtherTransactions.Asdiscussedabove,theBrooklynUnion/LILCO,Agreementcontemplatestheexecutionanddeliveryof,and'performanceofthetransactionscoiitemplatedby,the'KeySpanExchangeAgreement.(,s''s.~'TheBrooklynUnion/LILCOAgreementrecognizesthat,inconnectionwiththe~LIPAAgreement,LILCOandBrooklynUnioncontemplatetheformationofapartnershipforthepurposeofpurchasinginterestratehedgecontracts,tobefundedthroughcapitalcontributionsofupto$30millionbyeachofthem(theformationofsuchpartnershipandthepurchaseofsuchcontractsbeingreferredtohereinasthe"HedgeArrangements").TheBrooklynUnion/LILCOAgreementprovidesthatLILCOwillnotmodify,amendorterminatetheLIPAAgreement,andwillnotprovideanyconsent,.waiverorreleasethereunderwithoutthepriorwrittenconsentofBrooklynUnion.I"*4,MRule145Ajfiliates.BrooklynUnionandLILCOhaveidentifiedinletterstooneanotherallpersonswhoare,andtosuchperson',sbest.knowledgewhowillbeatthe.ClosingDate,,affiliates.of..BrooklynUnionandLILCO,respectively,assuchtermisusedinRule145undertheSecuritiesAct(orotherwiseunderapplicableSECaccountingreleaseswithrespecttopoolingofinterests'accountingtreatment).'kEachofBrooldynUnionandL'ILCOh'asagree'dtouseallreasonable'effortsto"cause'their,respectiveaffiliates(includinganyperson'whomaybedeemedto,havebecome'anaffiliate"afterthedateoftheletterreferredtointheprecedingparagraph)todelivertoth'e'HoldingCompanyonor'r'iortotheClosingDateawrittenagreementcustomaryfortransactionsofthisnatureandinformand:substancerea'sonablysatisfactorytorooklynUnionandLILCO.73 Ifanypersonrefusestoprovidesuchawrittenagreement,then,inlieuofreceiptofsuchwrittenagreement,theHoldingCompanyisentitledtoplaceappropriatelegendsontheHoldingCompanyCommonStockcertificates'tobereceivedbysuchpersonpursuanttothetermsoftheBi;ooklynUnion/LILCOAgreement,andtoissueappropriatestocktransfer,instructionstothetransferagentfortheHoldingCompanyCommonStock,totheeffectthatthesharesofHoldingCompanyCommonStockreceivedortobereceivedbysuchpersonpursuanttothetermsoftheBrooklynUnion/LILCOAgreementmayonlybesold,transferredorotherwiseconveyed,andtheholderthereofmayonlyreducehisinterestinorrisksrelatingtosuchsharesofHoldingCompanyCommonStock,pursuanttoaneffectiveregistrationstatementundertheSecuritiesAct,incompliancewithRule145thereof,asamendedfromtimetotime,orinatransactionwhich,intheopinionoflegalcounselsatisfactorytotheHoldingCompany,isexemptfromtheregistrationrequirementsoftheSecuritiesAct.TheforegoingrestrictionsonthetransferabilityofHoldingCompanyCommon,Stockapplytoallpurportedsales,transfersandotherconveyancesofthesharesofHoldingCompanyCommonStockreceivedortobereceivedbysuchpersonpursuanttotheBrooklynUnion/LILCOAgreementandtoallpurportedreductionsintheinterestinorrisksrelatingtosuchsharesofHoldingCompanyCommonStock,whetherornotsuchpersonhasexchangedthecertificatespreviouslyevidencingsuchpersons'haresofBrooklynUnionCommonStockorLILCOCommonStock,asthecasemaybe,for.certificatesevidencingsharesofHoldingCompanyCommonStockintowhichsuchshareswereconverted.ConditionstoEachParty'sObligationtoEffecttheCombinationTherespectiveobligationsofLILCOandBrooklynUniontoeffecttheCombinationaresubjecttothefollowingconditions:F(a)theadoptionbytheshareholdersofBrooklynUnionandLILCOoftheBrooklynUnion/LILCOAgreementandthetransactionscontemplatedthereby;(b)notemporaryrestrainingorderorpreliminaryorpermanentinjunctionorotherorderwillbeieffectthatpreventsconsummationoftheCombination,andtheCombinationandothertransactionscontemplatedbytheBrooklynUnion/LILCOAgreementwillnotbeprohibitedunderanyapplicablelaw;(c)theJointProxyStatement/Prospectuswillhavebecomeeffectiveandwillnotbethesubjectofastoporder;(d)thesharesofHoldingCompanyCommonStocktobeissuedinconnectionwiththeCombinationwillhavebeenapprovedforlistingontheNewYorkStockExchangeuponofficialnoticeofissuance;(e)thereceiptofallmaterialgovernmentalandregulatoryauthorizations,consents,ordersorapprovalsshallhavebeenobtained,shallhavebecomeFinalOrders(asdefinedintheBrooklynUnion/LILCOAgreement)andshallnotimposetermsorconditionswhichcouldreasonablybeexpectedtohaveamaterialadverseeffect;(f)unlesstheLIPATransactionhasbeen'consummated,orwillbeconsummatedcontemporaneouslywiththeCombination,thereceiptbyeachofLILCOandBrooklynUnionoflettersfromtheirindependentpublicaccountantsstatingthattheyconcurwithmanagement'sconclusionthatnoconditionsexistthatwouldprecludethetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementfromqualifyingaspoolingofintereststransactionsundergenerallyacceptedaccountingprinciples;(g)iftheLIPAAgreementhasnotbeenterminated,theissuancebytheHoldingCompanyofanappropriateamount,notinexcessof$100million',ofpreferredstocktosuchpersons(whichpersonsmayinclude,amongothers,definedbenefitplans,employees,officersanddirectorsofBrooklynUnionorLILCO,andinvestmentbankers)anduponsuchtermssoastocausetheformationoftheHoldingCompanytobeatransactiontowhichSection351oftheCodedoesnotapply;(h)thereceiptof.anopinion,datedasoftheClosingDate,totheeffectthattheShareExchangewil~satisfytherequirementsofSection351oftheCode,iftheLIPATransactionhasbeenterminated;74 (i)withrespecttoeachofBrooklynUnionandLILCO,theperformanceinallmaterialrespectsofallobligationsoftheotherpartyrequiredtobeperformedundertheBrooklynUnion/LILCOAgreementandtheStockOptionAgreements;(j)withrespecttoeachofBrooklynUnionandLILCO,theaccuracyoftherepresentationsandwarrantiesoftheotherpartysetforthintheBrooklynUnion/LILCOAgreementandtheStockOptionAgreementsonandasofDecember29,1996andasoftheClosingDate(exceptaswouldnotreasonablybelikelytoresultinamaterialadverseeffect);(k)LILCOandBrooklynUnionreceiveofficers'ertificatesfromeachotherstatingthatcertain,conditionssetforthintheBrooklynUnion/LILCOAgreementhavebeensatisfied;,(I)withrespecttoeachofBrooklynUnionandLILCO,theabsenceofanymaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsoftheotherpartyanditssubsidiariestakenasawhole;(m)withrespecttoBrooklynUnion,thereceiptofanopinion,datedasoftheClosingDate,totheeffectthatthe=MergerwillqualifyasareorganizationpursuanttoSection368oftheCode;and(n)withrespecttoeachofBrooklynUnionandLILCO,thereceiptby=theotherpartyofcertainmaterialthird-partyconsents.Inaddition,theBrooklynUnion/LILCOAgreementprovidesthatitisaconditiontotheobligationofBrooklynUniontoholdtheBrooklynUnionMeetingthattheopinionofMerrillLynchattachedheretoasAnnexEhasnotbeenwithdrawn,anditisaconditiontotheobligationofLILCOtoholdtheLILCOMeetingthattheopinionofDillonReadattachedheretoasAnnexFhasnotbeenwithdrawn.AtanytimepriortotheEffectiveTime,totheextentpermittedbyapplicablelaw,theconditionstoBrooklynUnion'sorLILCO'sobligationstoconsummatetheCombinationmaybewaivedbytheparties.Anyeterminationtowaiveaconditionwoulddependuponthefactsandcircumstancesexistingatthetimeofsuchaiverandwouldbemadebythewaivingparty'sBoardofDirectors,exercisingits,fiduciarydutiestosuchpartyanditsshareholders.TerminationTheBrooklynUnion/LILCOAgreementmaybeterminatedatanytimepriortotheClosingDate,whetherbeforeorafterapprovalbytheshareholdersofLILCOandBrooklynUnion;(a)bymutualwrittenconsentoftheBoardsofDirectorsofBrooklynUnionandLILCO;'b)byeitherpartytotheBrooklynUnion/LILCOAgreement,bywrittennoticetotheotherparty,iftheEffectiveTimehasnotoccurredonorbeforeAugust31,1998(orApril28,1999ifallbutcertainspecifiedconditionshavebeenorarecapableofbeingfulfilledonAugust31,1998),butonlyifthefailureoftheEffectiveTimetooccurwasnotcausedbythatparty'sfailuretofulfillanyofitsobligationsunderthe'BrooklynUnion/LILCOAgreement,andprovidedthatLILCOwillnothavetherighttoterminatetheBrooklynUnion/LILCOAgreementpursuant,tothisprovisioniftheLIPAAgreementhasnotbeenterininated;(c)byeitherpartytotheBrooklynUnion/LILCOAgreement,bywrittennoticetotheotherparty,ifanyrequiredshareholderapprovalhasnotbeenobtainedatadulyheldmeetingofshareholdersoratany"adjournmentthereof;(d)byeitherpartytotheBrooklynUnion/LILCOAgreement,ifanystateorfederallaw,order,ruleorregulationisadoptedorissuedwhichhastheeffectofprohibitingtheCombination,orifanycourtofcompetentjurisdictionintheU.S.oranystatehasissuedanorder,judgmentor,decree,permanentlyrestraining,enjoiningorotherwiseprohibitingtheCombination,andsuchorder,judgmentordecreehasbecomefinalandnonappealable;,,75 (e)byeitherLILCOorBrooklynUnion,upontwo-days'riornoticetotheotherparty,if:(i)suchpartyreceivesatenderofferoranywrittenofferorproposalwithrespecttoamergerofsuchparty,saleofamaterialportionofsuchparty'sassetsorotherbusinesscombinationinvolvingsuchparty(each,a"BusinessCombination")byapersonotherthanLILCO,inthecaseofBrooklynUnion,orBrooklynUnionorLIPA,inthecaseofLILCO,oranyoftheirrespectiveaffiliates,(ii)suchparty'sBoardofDirectorsdeterminesingoodfaiththatitsfiduciar'yobligationsunderapplicablelawrequirethatsuchtenderofferorotherwrittenofferorproposalbeaccepted,(iii)theBoardofDirectorsofsuchpartyhasbeenadvisedinawrittenopinionofoutsidecounselthatnotwithstandingabindingc'ommitmenttoconsummateanagreementofthenatureoftheBrooklynUnion/LILCOAgreemententeredintointheproperexerciseoftheirapplicablefiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbytheotherparty,suchfiduciary,dutieswouldalsorequirethedirectorstoreconsidersuchcommitmentasaresultofsuchtenderofferorotherwrittenofferorproposal,and(iv)priortoanysuchtermination,suchpartyshall,andshallcauseitsrespectivefinancialandlegaladvisorsto,negotiatewiththeotherpartytomakesuchadjustmentsinthetermsandconditionsoftheBrooklynUnion/LILCOAgreementaswouldenable'suchpartytoproceedwiththetransactionscontemplatedtherebyonsuchadjustedterms;(I)byeitherLILCOorBrooklynUnion,bywrittennoticetotheotherparty,if:(i)theotherpartyisinbreachoftherepresentationsandwarrantiesitmadeintheBrooklynUnion/LILCOAgreementandsuchbreaches,individuallyorintheaggregate,'ouldorwouldbereasonablylikelytoresultinamaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsofthenon-breachingpartyanditssubsidiariestakenasawhole,andsuchbreacheshavenotbeenremediedwithin20daysafterreceiptbythebreachingpartyofnoticeinwritingfromthenon-breachingparty,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,II(ii)theotherparty(and/oritsappropriatesubsidiaries)hasnotperformedandcompliedinallrespectswithcertainagreementsandcovenantsrelatingtotheabsenceofchangesincapitalizationorissuanceofsecuritiesorhasfailedtoperformandcomply,inallmaterialrespects,withitsotheragreementsandcovenantsundertheBrooklynUnion/LILCOAgreementorundertheLILCOStockOptionAgreementortheBrooklynUnionStockOptionAgreement,asthecasemaybe,andsuchfailuretoperformorcomplyhasnotbeenremediedwithin20daysafterreceiptbythebreachingpartyofnoticeinwritingfromthenon-breachingparty,specifyingthenatureofsu'chfailureandrequestingthatitberemedied,or(iii)theBoardofDirectorsoftheotherpartyoranycommitteethereof(A)withdrawsormodifiesinanymanneradversetothepartygivingnoticeitsapprovalorrecommendationoftheBrooklynUnion/LILCOAgreementortheCombination,(B)failstoreaffirmsuchapprovalorrecommendationupontherequestofthepartygivingnotice,(C)approvesorrecommendsanyacquisitionofitselforamaterialportionofitsassetsoranytenderofferforsharesofitscapitalstock,ineachcasebyapartyotherthanthepartygivingnoticeoranyofitsaffiliates(otherthan,inthecaseoftheLILCOBoard,withrespecttotheLIPAAgreement,assuchagreementmaybeamendedfromtimetotimewiththeconsentofBrooklynUnion,andwithrespecttothetransactionscontemplatedthereby)or(D)resolvestotakeanyoftheactionsspecifiedinclause(A),(B)or(C);or(g)byeitherLILCOorBrooklynUnion,bywrittennoticetotheotherparty,ifanyoftheconditionsofeitherparty'sobligationtoeffecttheCombinationcannotbesatisfiedIftheBrooklynUnion/LILCOAgreementisterminatedbyeitherLILCOorBrooklynUnionasprovidedabove,thenneitherLILCO,BrooklynUnionnortheirrespectiveofficersordirectorswillbeliableorhaveanyobligationsthereunderotherthan:(i)toholdinstrictconfidencealldocumentsfurnishedtotheother~accordancewiththeConfidentialityAgreementbetweenLILCOandBrooklynUnion,datedOctober24,'199~76 itmaybeamendedfromtimetotime;,(ii)topaycertainfeesandexpensespursuanttocertainspecifiedprovisionsoftheBrooklynUnion/LILCOAgreementdescribedbelowunder"-TerminationFees"and(iii)tocomplywithcertainotherspecifiedprovisionsoftheBrooklynUnion/LILCOAgreement.IftheBrooklynUnion/LILCOAgreementisterminatedpursuanttoitsterms,LILCOandtheHoldingCompanymayconsummatetheShareExchangeforthepurposeofconsummatingtheLIPATransactiononthebasisofoneshareofHoldingCompanyCommonStockforeachshareofLILCOCommonStock..TerminationFeesllTheBrooklynUnion/LILCOAgreementprovidesthatifsuchagreementisterminablebyeither(butnotboth)ofBrooklynUnionandLILCOforbreaches'ofanyrepresentationsorwarrantiescontainedtherein,orofagreementsandcovenantscontainedthereinorintheLILCOStockOptionAgreement,ortheBrooklynUnionStockOptionAgreementdescribedbelow,asthecasemaybe,andthenon-breachingpartyterminatespursuant.totheprovisionsoftheBrooklynUnion/LILCOAgreementdescribedinclauses(f)(i)and(f)(ii)under"-Termination"above,then,ifsuchbreachisnotwillful,thenon-breachingpartyisentitledtoreimbursementofitsdocumentedout-of-pocketexpenses,nottoexceed$10million.NIntheeventofaterminationpursuant.tosuchprovisionsasaresultofawillfulbreach,thenon-breachingpartywillbeentitledtoitsout-of-pocketexpenses(whichshallnotbelimitedto$10million)andanyremediesitmayhaveatlaworinequity,providedthat,if:C.'i)atthetimeofthebreachin'gparty'swillfulbreach,therehasbeenathird-partytenderofferorproposalwithrespecttoaBusinessCombinationinvolvingthebreachingpartyoroneofitsaffiliateswhich'tthetim'eofterminationhasnotbeenrejectedbythebreachingpartyandwithdrawribythethirdparty,and.t(ii)withintwoandone-halfyearsofanyterminationbythenon-breachingparty,thebreachingpartyoranaffiliatethereofbecomesasubsidiaryofsuchthirdpartyoroneofitsaffiliatesoracceptsanoffertoconsummateo<consummatesaBusinessCombinationwithsuchthirdparty,1thensuchbreachingparty,uponthesigningofadefinitiveagreementrelatingtosuchaBusinessCombination,or,ifnosuchagreementissignedthenattheclosingofsuchBusinessCombination,willpaytothenon-breachingpartyanadditionalfeeequalto$65million(ifthebreachingpartyisLILCO)or$35million(ifthebreachingpartyisBrooklynUnion).TheBrooklynUnion/LILCOAgreementrequirespaymentofanadditionalterminationfeeincertaincircumstances,if:(i)theBrooklynUnion/LILCOAgreementisterminated:(A)asaresultofthedeterminationingoodfaithbyeithertheLILCOBoardortheBrooklynUnionBoardthatitsfiduciaryobligationsrequiretheacceptancebyeitherLILCOorBrooklynUnion,asthecasemaybe,ofathird-partytenderofferorproposalwithrespecttoaBusinessCombinationpursuanttotheprovisionsoftheBrooklynUnion/LILCOAgreementdescribedinclause(e)under"-Termination"above,(B)followingawithdrawalormodificationinamanneradversetotheotherpartybytheBoardofDirectorsofsuchpartyofitsrecommendationoftheCombination,afailureoftheBoardofDirectorsofsuchpartytoreaffirmitsapprovalorrecommendationoftheBindingShareExchangesuponrequestoronapprovalorrecommendationbytheBoardofDirectorsofsuchpartyofanyacquisitionbyathirdpartyofsuchpartyoramaterialportionofsuchparty'sassets,ort(C)asaresultofsuchparty'smaterialfailuretoconveneashareholdermeeting,distributeproxymaterialsand,subjecttoitsBoardofDirectors'iduciaryduties,recommendtheBrooklynUnion/LILCOAgreementandtheCombinationtoitsshareholders;77 (ii)atthetimeofsuchterminationorpriortothemeetingofsuchparty'ssh'areholders,thereshahavebeenathird-partytenderofferorproposalwithrespecttoaBusinessCombinationinvolvingsuchpartyoranyofitsaffiliateswhichhasnotbeenrejectedbysuchpartyandwithdrawnbythethirdparty;and(iii)withintwoandone-halfyearsofanysuchterminationdescribedinclause(i)above,thepartywhichwasthesubjectofs'uchofferorproposal(the"SubjectParty")becomesasubsidiaryoraffiliateofsuchofferororacceptsanoffertoconsummateorconsummatesaBusinessCombinationwithsuchofferor(orasubsidiaryoraffiliateofsuchofferor).UponthesigningofadefinitiveagreementbetweentheSubjectPartyandthethirdpartyor,ifnosuchagreementissigned,thenattheclosingoftheSubjectPartybecomingsuchasubsidiaryorsuchthird-partyBusinessCombination,theSubjectPartymustpaytotheotherparty$75million(ifthe,SubjectPartyisLILCO)or$45million(iftheSubjectPartyisBrooklynUnion);plus,ineithercase,theout-of-pocketfeesandexpensesincurredbytheotherpartyarisingoutof,inconnectionwithorrelatedtothetransactionscontemplatedbytheBrooklynUnion/LILCOAgreement.TheBrooklynUnion/LILCOAgreementprovidesalimitationonthetotalaggregateamountpayableasterminationfeesbyeitherpartypursuanttotheBrooklynUnion/LILCOAgreementandtheStockOptionAgreements.Thetotalamountofallterminationfeespayablewillnotexceed$90millionforLILCO(anditsaffiliates)and$50millionfor'BrooklynUnion(anditsaffiliates).IntheeventthattheBrooklynUnion/LILCOAgreementbecomesterminableundercircumstancesinwhicha$75millionor$45millionterminationfeecouldbepayablebyonepartypursuanttotheimmediatelyprecedingparagraph,sucheventwillalsoconstitutea"TriggerEvent"undertheStockOptionAgreementpursuanttowhichsuchpayingpartyisobligatedtoissueanoptiontotheotherpartysoastoentitletheotherpartytorequiresuchpayingpartytorepurchasesuchoptionortheOptionShares(asdefinedbelow)issueduponexercisethereof.See"TheStockOptionAgreements."ForpurposesoftheprovisionsoftheBrooklynUnion/LILCOAgreementrelatingtotheterminationftheLIPAAgreementisdeemedtobeaproposalforaBusinessCombinationinvolvingLILCO,andLIPAisdeemedtobetheofferorwithrespectthereto,andanyfeeforthebenefitofBrooklynUnionwouldbepayableundersuchprovisionsatthetimetheBrooklynUnion/LILCOAgreementisterminated;providedthatiftheBrooklynUnion/LILCOAgreementisterminatedfollowingafailurebytheshareholdersofLILCOtoadopttheBrooklynUnion/LILCOAgreement;thentheLIPAAgreementwillnotbe'eemedaproposalforaBusinessCombinationinvolvingLILCOandnoterminationfeewillbepayabletoBrooklynUnionbyvirtueoftlieLIPAAgreement.78 eTHESTOCKOPTIONAGREEMENTSThefollowingisabriefsummaryof,theniaterialtermsoftheAmended,andRestatedLILCOStockOptionAgreementandtheAmendedandRestatedBrooklynUnionStockOptionAgreement,copiesofwhicliiarqattachedasAnnexBandAnnexC,respectively,andwhichareincorporatedhereinbyreference.SuchsummaryisqualifiedinitsentiretybyreferencetosuchAmendedStockOptionAgreements.TheAmendedStockOptionAgreementsareintendedtoincrease,theIikeli%oodtliattheCombinationwillbe,consummatedinaccordancewiththetenpsoftheBrpoklynUnion/LILCOAgreement.Consequently,certainaspects.oftheAmendedStockOptionAgreementstnayhavetheegectofdiscouragingpersonswhomightnoworpriortotheEffectiveTimebeinterestedinacquiringalloforasignificantinterestin,orothenviseegectingaBusinessCombinationwith,BrooklynUnion,orLliCOfromconsideringorproposingsuchatransaction,evenifsuchpersonswerepreparedtooffertopayconsiderationtoshareholdersofBrooklynUnionorLILCO,asthecase>naybe,whichhadaIiighervaluethanthesharesofHoldingCompanyCommonStocktobereceivedpershareofBrooklynUnionComnionStockorLILCOCommonStock,asthecasemay.be,pursuanttotheBrooklynUnion/LILCOAgreeinent.GeneralPursuanttomutualAmendedStockOptionAgreementsenteredintoconcurrentlywiththeBrooklynUnion/LOCOAgreement,LILCOhasgrantedtoBrooklynUnionanoptiontopurchase,undercertaincircumstances,upto23,981,964sharesofLILCOCommonStockatapriceof$19.725pershareandBrooklynUnionhasgrantedtoLILCOanoptiontopurchase,undercertaincircumstances,upto9,948,682sharesofBrooklynUnionCommonStockataprice.of$30.0375pershare(collectively,the"Options"andtheholderofeachsuchOption,the"OptionHolder").SharesofLILCOCommonStockpurchasablebyBrooklynUnionandsharesofBrooklynUnionCommonStockpurchasablebyLILCOpursuanttotheOptions,arecollectivelyreferredtoas"OptionShares,"Theexercisepriceispayable,attheOptionHolder'soption,incashor,subject~~oanyrequiredgovernmentalapprovals,insharesofcommonstockoftheOptionHolder.TheOptionsmaybeexercisedbytheOptionHolder,inwholeorinpart,atanytimeorfromtimetotimeaftertheBrooklynUnion/LILCOAgreementbecomesterminablebysuchOptionHolderundercircumstanceswhichcouldentitlesuchOptionHoldertoterminationfeesasaresultofaTriggerEvent(asdefinedintheAmendedStockOptionAgreementsandreferredtoaboveunder"TheAgreementandPlanofExchangeandMerger-TerminationFees"),regardlessofwhethertheBrooklynUnion/LILCOAgreementisactuallyterminatedorwhetherthereoccursaclosingofanyBusinessCombination.TheOptionswillterminateupontheearlierof(i)theEffectiveTime,(ii)theterminationoftheBrooklynUnion/LILCOAgreementpursuanttoitsterms(otherthanaterminationuponorduringthecontinuanceofaTriggerEvent),or(iii)180daysfollowinganyterminationoftheBrooklynUnion/LILCOAgreementuponorduringthecontinuance'ofaTriggerEvent(or,ifattheexpirationofsuch180-dayperiod,theOptioncannotbeexercisedbyreason'ofany'applicablejudgment,decree,order,laworregulation,tenbusiness'daysaftersuchimpedimenttoexercisehasbeenremovedorhasbecomefinalandisnotsubjecttoappeal,butinnoeventunderthisclause(iii)laterthanApril28,1999).Notwithstandingtheforegoing,noOptionmaybeexercised(a)iftheOptionHolderisinmaterialbreachofanyofitsmaterialrepresentationsorwarranties,orinmaterialbreachofanyofitscovenantsoragreementscontainedintheapplicableAmendedStockOptionAgreementorintheBrooklynUnion/LILCOAgreement,or(b)untilallnecessaryregulatoiyapprovalshavebeenobtainedfortheacquisitionofsharespursuanttosuchOption.CertainRepurchasestUnderthetermsoftheAmendedStockOptionAgreements,atanytimeduringwhichtheOptionisercisable(the"RepurchasePeriod"),theOptionHolderhastherighttorequiretheisstieroftheOption(the79 "Issuer")torepurchasefromtheOptionHolderalloranyportionoftheOptionor,atanytimepriortoAugus31,1998(providedthatsuchdateshallbeextendedtoApril28,1999underthecircumstanceswherethedateafterwhicheitherpartymayterminatetheBrooklynUnio'n/LILCOAgreementhasbeenextendedtoApril28,1999),alloranyportionoftheOptionSharespurchasedpursuanttotheexerciseoftheOption.TheamountthattheIssuerwillpaytotheOptionHoldertorepurchasetheOptionisthedifferencebetweentheMarket/OfferPrice(asdefinedbelow)forsharesofIssuer'sCommonStockasofthedatetheOptionHoldergivesnoticeofitsintenttoexerciseitsrepurchaserights(the"NoticeDate")andtheexercisepricefortheOption,multipliedbythenumberofOptionSharespurchasablepursuanttotheOption,ortheportionthereoftobesorepurchased,butonlyiftheMarket/OfferPriceisgreaterthansuchexerciseprice.The,amountthattheIssuerwillpay'totheOptionHoldertorepurchasethe*OptionSharesistheexercise'ricepaidbytheOptionHolderfortheOptionSharesplusthedifferencebetweentheMarket/OfferPriceandtheexercisepricepaidbytheOptionHolderfortheOptionShares(butonlyiftheMarket/OfferPriceisgreaterthansuchexerciseprice),multipliedbythenumberofOptionSharestobesorepurchased.Ifsuch'repurchasepricewasatalevelwhereacontemplatedrepurchasewouldotherwisebesubjecttoavoteoftheshareholdersoftheIssuerpursuanttoSection513(e)oftheNYBCL,thensuchrepurchasepricemaybereducedattheIssuer'soptiontoanamountwhichwouldpermitsuchrepurchasewithoutthenecessityforsuchashareholdervote.TheAmendedStockOptionAgreementsdefine"Market/OfferPrice"asthehigherof(A)thepricepershareofferedasoftheNoticeDatepursuanttoanytenderorexchangeofferorotherBusinessCombinationofferwhichwasmadepriortotheNoticeDateandnotterminatedorwithdrawnasofsuchdateor(B)theFairMarketValueoftheIssuer'sCommonStockasoftheNoticeDate(whichisdefinedintheStockOptionAgreementsastheaverageofthedailyclosingsalepriceforsuchsharesontheNewYorkStockExchangeduringthetenNewYorkStockExchangetrading'dayspriortothefifthNewYorkStockExchangetradingdayprecedingsuchdate).Thepriceper'sharefortherepurchasebytheIssuerofOptionSharespurchasedbytheOptionHolderpursuanttotheOptionisthehighestpricepershareofferedpursuanttoatenderorexchangeofferorotherBusinessCombinationofferwhichwasmadeduringtheRepurchasePeriodpriortotheNoticeDate.AtanytimepriortoAugust31,1998(whichdatemaybeextendedtoApril28,1999underthecircumstancesdescribedabove),theOptionHoldermayalsorequiretheIssuertoselltotheOptionHolderanysharesoftheOptionHolder'sCommonStockdeliveredbytheOptionHoldertotheIssuerinpaymentfortheexercisepriceoftheOption,atthepriceattributedtosuchsharesforsuchpurposeplusinterestattherateof6.5%perannum(fromthedateofthedeliveryofsuchsharesthroughthedateofsuchrepurchase)lessanydividendspaidordeclaredandpayablethereon.RestrictionsonTransferTheAmendedStockOptionAgreementsprovidethatneitherpartymaysell,assign,pledgeorotherwisedisposeofortransferthesharesitacquirespursuanttotheAmendedStockOption.Agreements(collectively,the"RestrictedShares")exceptasspecificallyprovidedforintheAmendedStockOptionAgreements.Inadditiontotherepurchaserightsdescribedaboveunder"-CertainRepurchases,"subsequenttotheterminationoftheBrooklynUnion/LILCOAgreement,thepartieshavetherighttohavesuchsharesoftheotherpartyregisteredundertheSecuritiesActforsaleinapublicoffering.TheAmendedStockOptionAgreementsalsoprovidethat,followingtheterminationoftheBrooklynUnion/LILCOAgreement,eitherpartymaysellanyRestrictedSharespursuanttoatenderorexchangeofferapprovedorrecommended,orotherwisedeterminedtobefairandin.thebestinterestsofsuchotherparty'sshareholders,byamajorityoftheBoardofDirectorsofsuchotherparty.KeySpanwillsucceedtotherightsandobligationsofBrooklynUnionundertheAmendedStockOptionAgreementsiftheKeySpanAgreementisadoptedbyBrooklynUnioncommonshareholdersattheBrooklynUnionMeetingandtheKeySpanShareExchangeisconsummated.Insuchevent,amongotherthings,KeySpanCommonStock,andnotBrooklynUnionCommonStock,willbesubjecttoissuanceuponanyexerciseoftAmende4BrooklynUnionStockOptionAgreement.80
'HE,LIPATRANSACTION,ThefollowingisasummaryofthematerialtermsoftheLIPAAgreement,whichisattachedasAnriexDand)viu'chisincorporatedhereinbyreference.,ThissummaryisqualipedinitsentiretybyreferencetotheLIPAAgreement.AgreementandPlanofMergerLILCOandLIPAenteredintotheLIPAAgreementasofJune26,1997.TheLIPAA'greementrequires:(i)LIPAtoformasubsidiary(referredtoas"LIPASub")andto'causeLIPASubtoexecute'acounterpartoftheLIPAAgreement;and(ii)LILCOtoformtheHoldingCompanyandtocausetheHoldingCompanytoexecuteacounterpartoftheLIPAAgreementpriortotheclosingthereunder.TheLIPAA'greementprovidesthatLIPASub(asubsidiaryofLIPA)istoniergewithandintoLILCO,'withLILCOtobethesurvivingcorporation(the"SurvivingCorporation").BeforetheclosingoftheLIPATransaction(the"LIP'AClosihg"),theHoldingCompanywillformsubsidiaries,whicharereferredtoastheTransfereeSubsidiaries.ArthedirectionoftheHoldingCompany,theTransfereeSubsidiarieswill,enterintocertainagreementsinconnectionwiththeLIPATransaction,whicharereferredtoastheBasicAgreements(asdefinedbelow).TheTransfereeSubsidiarieswillalsoreceivecertainassetsandpropertiesofLILCOtobetransferredaspartoftheLIPATransaction(the"TransferredAssets").TheLIPA'AgreementsetsouttheprinciplesandprocedurestobeusedtodecidewhichLILCOassetsandpropertieswillbepartoftheTransferredAssetsandwhichwillremainwiththeSurvivingCorporation(the"RetainedAssets").,ImmediatelypriortotheeffectivetimeoftheLIPAmergerdescribedbelow(the"LIPAEffectiveTime"),LILCOwilltransfertheTransferredAssetstotheTransfereeSubsidiariesinexchangefor(x)anumberofshares~~ofHoldingCompanyCommonStocktobedesignatedby,theHoldingCompanypriortosuchtimeandpresentingtheHoldingCompany'sestimateofthefairmarketvalueoftheTransferredAssetsand(y)upto5millionfaceamountofaseriesofHoldingCompanyPreferredStockhavingtermstobedesignatedbytheHoldingCompanypriortosuchtime(the"PrivatePlacementPreferredStock").ItisanticipatedthatLILCOwillbeobligatedtosellthePrivatePlacementPreferredStock,immediatelypriortothe"LIPAEffectiveTime,'ooneormorepurchasersinaprivateplacement.'ItisanticipatedthatthePrivatePlacementPreferredStockwill:,(i)haveafinalmaturitydatemorethanfiveyearsaftertheLIPAEffectiveTime,(ii)benon-voting(exceptforfailuretopaydividendsforaspecifiedperiodoftime),l(iii)benon-convertible,and.f(iv)haveothertermsandconditionstobedeterminedatthetimeofsale.AttheLIPAEffectiveTime,andwithoutanyactiononthepartofanyholderofany,capitalstockoftheHoldingCompany,LILCOorLIPASub,thesharesofcapitalstockofLILCOwi11betreatedasfollows:(i)Thefollowingshares(the"CancelledShares")willbecancelledandretired,withoutthepaymentofanyconsideration:lp(a)EachshareofLILCOCommonStockandeachshareofLILCOpreferredstockthatisownedbyLILCOastreasury-stock;and(b)EachshareofLILCOpreferredstockown'edbyanydirector'indirectwhollyownedsubsidiaryoftheHoldingCompanyimmediatelyprior,totheLIPAEffectiveTime.
(ii)EachissuedandoutstandingshareofLILCOCommonStock,otherthanCancelledSharesansharesofLILCOCommonStockheldbyanydissentingshareholder,willbecancelledandconvertedintotherighttoreceive:-(a)anamountincashequaltotheCashPurchasePrice(asdefinedbelow)dividedbythenumberofsharesofLILCOCommonStockoutstanding,and(b)aproratadistributionoftheCompanyCommonStockreceivedbyLILCOinexchangefortheTransferredAssets.(iii)Eachholder,ofsuchshareswillbedeemedtohaveappointedanExchangeAgent(asdefinedintheLIPAAgreement)asitsagenttoreceivethecashandtousethecashtosubscribeforsharesofHoldingCompanyCommonStock.ThenumberofsharesofHoldingCompanyCommonStockdistributabletoholdersofLILCOCommonStockinrespectofeachshareofLILCO,Common,Stock,aggregatingthenumberdistributablefromtheHoldingCompanyCommonStockreceivedbyLILCOinexchangefor,theTransferredAssetswiththenumberdistributablefromthepurchasebytheExchangeAgentofadditionalsharesofHoldingCompanyCommon,Stockoutofthecashmergerconsideration,willequal:(a)0.880sharesofHoldingCompanyCommonStockiftheCombinationisconsummated'concurrentlywiththeLIPAEffectiveTime,or(b)oneshareofHoldingCompanyCommonStockiftheCombinationisnotconsummatedconcurrentwith,theLIPA.EffectiveTime.(iv)IftheCombinationhasbeenconsummatedpriortotheLIPAEffectiveTime,then:(a)nosharesofHoldingCompanyCommonStockorPrivatePlacementPreferredStockwillbedeliveredinexchangefortheTransfer/udAssets,(b)theHoldingCompanyand/oroneorm'oreofitssubsidiaries,astheholdersofalltheoutstandingLILCOCommonStock,willreceiveallofthecashmergerconsideration,and(c)anadditional0.077sharesofHoldingCompanyCommonStockwillbedistributedtotherecordholdersasoftheEffectiveTimeofLILCOCommonStockinrespectofeachshareofLILCOCommonStock.(v)EachissuedandoutstandingshareofSeriesAApreferredstockofLILCO,otherthanCancelledSharesandsharesofLILCOSeriesAApreferredstockheldbyanydissentingshareholder("DissentingPreferredShares"),willbecancelledandconvertedintotherighttoreceiveonefullypaidandnon-assessableshareofpreferredstockdftheHoldingCompanywithidenticalrights(includingdividendrates)anddesignationstotheSeriesAApreferredstock.(vi)EachissuedandoutstandingshareofLILCOPreferredStockthatissubjecttooptionalredemptionbyLILCOatorbeforetheLIPAClosingDate,otherthanCancelledShares,willbecalledforredemptionbyLILCOnotlaterthantheLIPAClosingDate.EachsuchshareofLILCOPreferredStockwillberedeemedforcashbyLILCOinaccordancewiththetermsapplicable'tosuchshares.TheaggregateamountofaccruedbutunpaiddividendsandredemptionpremiumspayablebyLILCOinrespectofsuchredemptionswillbepaidbytheHoldingCompanytoLILCOnotlaterthantwobusinessdayspriortothedatetheapplicableredemptionpriceispayable.(vii)EachissuedandoutstandingshareofLILCOPreferredStock,otherthanCancelledShares,DissentingPreferredShares,sharesofSeriesAApreferredstockandredeemablepreferredstock(collectively,the"Non-redeemablePreferredStock"),willbecancelledandconvertedintotherighttoreceivecashintheamountofthesumof(x)theMake-WholeAmountand(y)accruedbutunpaiddividendsinrespectofsuchsharethroughtheLIPAClosingDate.AsusedinthisJointProxyStatement/Prospectus,"Make-WholeAmount"means,withrespecttosuchshare,anamountequaltothepresentvalueof:(i)thefaceorliquidationpreferenceamountof,suchshare,and82 t(ii)theremainingdividendpaymentsdueonsuchsharebetweentheLIPAClosingDateandtheapplicableredemptiondatecomputedusingadiscountrateequaltotheapplicableFairMarketRatedividedby0.95."FairMarketRate"isdefinedastheGenericGeneralObligationFairMarketYieldforBaaratedLow/MediumCouponGeneralMunicipalObligationsatthetimeofthecomputationasreportedonBloomberg,withamaturitymostnearlyequaltotheperiodbetweencancellationandfinalredemptionofsuchseriesofNon-redeemable'PreferredStockLow/MediumCouponGeneral.TheperiodbetweencancellationandredemptionreferstotheperiodbetweentheClosingDateand:(A)August1,2002,withrespectto'theSeries"CCPreferredStock,(B)March1,1999,withrespecttotheSeriesGGPreferredStock,(C)May1,2001,withrespecttotheSeriesQQPreferredStock,and(D)October16,2018,withrespecttotheSeriesUUPreferredStock.Theamountbywhichtheaggregateamountpayableexceeds100%oftheaggregatefaceor'liquidationpreferenceamountsforallsharesofNon-redeemablePreferredStockshallbepaid'bytheHoldingCompanyto'theSurvivingCorporationpromptlyafter'theLIPAEffectiveTime.The"Cash-PurchasePrice"tobepaidby'IPA'willbe$2,497,500,000.TheCashPurchasePricewasdeterminedbaseduponthenetbookvalueoftheRetainedAssets,whichwas$2,500,800,000andissetforthintheproformconsolidatedbalancesheetofLILCOasofDecember31,1997preparedbyLILCO.TheCashPurchasePriceisbasedupontheassumptionthatthetotallongtermindebtednessofLILCOontheLIPAClosingDatewillnotexceed$3,576,000,000(the"RetainedDebtAmount").TheRetainedDebtAmountwillbeadjustedbaseduponitsnetbookvalue,asrefiectedonLIL'CO'sauditedconsolidatedbalancesheetasofthe'LIPAClosingDate,asfollows.TheRetainedDebtAmountwill"beeither:(i)increasedby'heamount,ifany,bywhichthenetbookvalueoftheRetainedAssetsexceeds"$2,500,800,000;ort'(ii)decreasedbytheamount,ifany,bywhichthenetbookvalueoftheRetainedAssetsislessthan'2,500,800,000.AttheLIPAClosing,theHoldingCompanywill,andwillcauseeachoftheTransfereeSubsidiariesto,executeanddeliverpromissorynotes(the"PromissoryNotes")onthefollowingterms:(i)Theaggregateprincipalamountwillbeequaltotheexcess,ifany,oftheindebtednessofLILCOoutstandingontheLIPAClosingDateovertheRetainedDebtAmount.h(ii)Theratesandmaturitieswillcorrespondtoeachportionofdebtunderlyingtheindebtednessof'IL'COonth'eLIPAClosingDafe;provided,however,thattheinterestandprincipalpaymentdateswillbeadjustedtorequire'paymentbytheHoldingCompany30dayspriortothecorrespondingpaymentdatesontheunderlyingdebt.LILCOcurrentlyhasaseriesof7.3%DebenturesdueJuly15,1999,withanapproximateaggregateprincipalamountcurrentlyoutstanding-of$397million,andaseriesof8.20%DebenturesdueMarch15,2023,withanapproximateaggregateprincipalamountcurrentlyoutstandingof$270million.Subjecttoobtainingallrequiredconsents,theHoldi'ngCompanywillassumetheseobligationsattheLIPAClosing.CertainothertaxexemptauthorityfinancingnoteswillbeidentifiedbythepartiestotheLIPAAgreementandassumedbytheHoldingCompany(subjecttoobtainingallrequiredconsentsandtotaxcounsel'sconcurrence).TheLIPAAgreementcontainscustomaryrepresentations,warrantiesandcovenantsbyeachoftheHoldingCompany,LILCO,LIPAandLIPASub.TherespectiveobligationsofthepartiestotheLIPAAgreementtoeffecttheLIPATransactionaresubjecttothesatisfactionofcertainconditionsonorpriortotheLIPAClosingDate,including,amongothers:(i)receiptofcertainstatutoryapprovals;(ii)entryintoeachoftheotherBasicAgreementsbytherelevantparties;'83 (iii)receiptoffavorableprivateletterrulingswithrespecttoSection337(d)oftheCode;andI(iv)LIPAhavingobtainedfinancingsufficienttofundtheCashPurchasePriceandcertainothertransactions.Therespectiveobligationsofthepartiestoeffectthe.,LIPATransactionarealsosubjecttotheconditionthat,onorpriortotheLIPAClosingDate;either:,(i)thetransactionscontemplatedbytheBrooklynUnion/LILCOAgreementwillhavebeenconsummated,(ii)theBrooklynUnion/LILCOAgreementwillhavebeenterminatedor(iii)allconditionstoconsummationofthetransactionscontemplatedby,theBrooklynUnion/LILCOAgreementwillhavebeensatisfiedorwaivedandsuchtransactionswillbeconsummatedpromptlyaftertheLIPAClosing.TheLIPAAgreementissubjecttoterminationbythepartiesincertaincircumstances,including,amongothers,bytheHoldingCompanyandLILCO,ontheonehand,orLIPAandLIPASub,ontheotherhand,iftheLIPAClosinghasnotoccurredonorbeforeAugust31,1998(orApril28,1999ifallbutcertainspecifiedconditionshavebeen,orarecapableofbeingfulfilledonAugust31,1998),butonlyifthefailureoftheLIPAClosingtooccurwasnotcausedbytheterminatingparty'sfailuretofulfillanyofitsobligationsundertheLIPAAgreement.OtherBasicAgreementsInconnectionwiththeLIPA,Transaction,thepartiesagreedtoenterintotheLIPAAgreement,thePromissoryNotesandcertainotheragreements(the"BasicAgreements"),whichareherebyincorporatedbyreference.See"WhereYouCanFindMoreInformation".TheBasicAgreementsinclude:1.ManagementServicesAgreement,wherebyasubsidiaryoftheHoldingCompanyagrees,amongotherthings,toprovidealloperation,maintenanceandconstructionservicestoLIPAfor8years;12.PowerSupplyAgreement,wherebyasubsidiaryoftheHoldingCompanyagrees,amongotherthintosupplyLIPAwithcapacityandenergyfromLILCO'sexistingGeneratingFacilities(asdefinetheLIPAAgreement)inordertoallowLIPAtoprovideelectricitytoitscustomersonLongIslandfor15years;3.EnergyManagementAgreement,wherebyasubsidiaryoftheHoldingCompanyagrees,amongotherthings,tomanagetheSystemPowerSupply(asthereindefined)onbehalfofLIPAand,asagentforLIPA,topurchasefuelsuppliesfortheGeneratingFacilitiesfor15years;4.GenerationPurchaseRightAgreement,pursuanttowhichLIPAhasthe,rightduringthefourthyearaftertheLIPAClosingtopurchasetheGeneratingFacilitiesforfairmarketvalue;5.GuarantyAgreement,wherebytheHoldingCompanyguaranteescertainobligationsofitssubsidiariesundertheotherBasicAgreements;and6.LiabilitiesUndertakingswherebytheHoldingCompanyandtheTransfereeSubsidiaries,ontheonehand,andLIPAandtheSurvivingCorporation,ontheotherhand,agreetoassumecertainliabilitiesandtoindemnifyoneanotherincertainsituationsinconnectionwiththeLIPATransaction.84
'SELECTEDINFORMATIONCONCERNING"BROOKLYNUNIONBusinessofBrooldynUnionBrooklynUnionwasincorporatedintheStateofNewYorkin1895asacombinationofexistingcompanies,thefirstofwhichwasgrantedafranchisein1849.BrooklynUniondistributesnaturalgasatretailintheBoroughsofBrooklynandStatenIslandandtwo-thirdsoftheBoroughofQueensinNewYorkCity.BrooklynUnion'sprincipalnon-utilitysubsidiariesparticipateandowninvestmentsingasandoilexploration,productionandprocessing,gaspipelinetransportationandstorage,cogeneration,marketingandotherenergy-relatedservices.BrooklynUnion'smailingaddressisOneMetroTechCenter,Brooklyn,NewYork11201-3850anditsgeneraltelephonenumberis(718)403-2000.Territory.BrooklynUnion'sserviceterritoryisapproximately187squaremiles.Thepopulationoftheterritoryservedisapproximately4millionpersons.AsofSeptember30,1996,BrooklynUnionhadapproximately1,126,000activemeters,ofwhichapproximately1,089,000wereresidential.Employees.AsofSeptember30,1996,BrooklynUnionhadapproximately3,000fulltimeemployeesofwhichapproximately1,745belongtoLocal101oftheTransportWorkersUnionand185arerepresentedbyLocal3oftheInternationalBrotherhoodofElectricalWorkers.EffectiveNovember1995andAugust1995,respectively,BrooklynUnionandthese"unionsagreeduponnewthreeyearlaboragreementswhichprovideforwageincreasesofapproximately9%overthetermoftheagreements.Regulation.Utilityretailsales,whichincludesalesofgas,transportationandbalancingservices,aremadeprimarilyunderrateschedulesandtariffsfiledwithandsubjecttothejurisdictionofthePSC.Amendmentshavebeenmadetorateschedulesandtariffstoreflecttheconditionsandratesunderwhichdeliveryandotherservicesareprovidedtocustomerswhoopttohavetheirgassuppliedbythirdparties.Rateschedulesalsohavebeenstablishedgoverningtheprovisionofcertainservicestosuchmarketers.iBrooklynUnionisalsosubjecttoregulationbythePSCwithrespecttoissuancesandsalesofsecurities,adequacyandcontinuanceofservice,safetyandsitingofcertainfacilities,accounting,andothermatters.IAdditioilalinformationconcerningBrooklyn'Unionanditssubsidiariesis'includedintheBrooklynUniondocumentsfiledwiththeCommissionwhichareincorporatedbyr'eferenceherein.See"WhereYouCanFindMoreInformation."ComparisonofShareholders'ightsTherightsofBrooklynUnionshareholdersarecurrently'overnedbytheNYBCL,theBrooklynUnionCertificateandtheBrooklynUnionBy-Laws.TherightsofLILCOshareholdersarecurrentlygovernedbytheNYBCL,theLILCOCertificateandtheLILCOBy-Laws.UponconsummationoftheCombination,therightsofBrooklynUnionshareholdersandLILCOshareholderswhobecomeshareholdersoftheHoldingCompanywillbegovernedbytheNYBCL,theHoldingCompanyCertificateandth'eHoldingCompanyBy-Laws.ThefollowingaresummariesofcertaindifferencesbetweenthecurrentrightsofBrooklynUnionandLILCOshareholdersandthoseofHoldingCompanyshareholdersaftertheCombination.ThefollowingdiscussionsarenotintendedtobecompleteandarequalifiedbyreferencetotheNYBCL,theBrooklynUnionCertificate,theBrooklynUnionBy-Laws,theLILCOCertificate,theLILCOBy-Laws,theHoldingCompanyCertificateandtheHoldingCompanyBy-Laws.CopiesoftheHoldingCompanyCertificateandtheHoldingCompanyBy-Laws,insubstantiallytheformstobeadoptedattheEffectiveTime,areattachedtothisJointProxyStatement-ProspectusasAnnexesGandH.CopiesoftheBrooklynUnionCertificate,theBrooklynUnionBy-Laws,theLILCOCertificateandtheLILCOBy-LawsareincorporatedbyreferencehereindwillbesenttoholdersofsharesofBrooklynUnionCommonStockandLILCOCommonStock,pectively,uponrequest.See"WhereYouCanFindMoreInformation."85 ComparisonoftheHoldingCompany'sCertificateofIncorporationandBy-LawstoBrooklynUnion'sCertificateofIncorporationandBy-LawsAuthorizedCapital.ThetotalauthorizedcapitalstockoftheHoldingCompanywillbe,.450,000,000sharesofHoldingCompanyCommonStock,parvalue$.01pershare,and100,000,000sharesofHoldingCompanyPreferredStock,parvalue$.01persharc.ThetotalauthorizedcapitalstockofBrooklynUnionconsistsof900,000sharesofcumulativepreferredstock,parvalue$100pershare,2,000,000sharesofcumulativepreferredstock,parvalue$25pershare,and70,000,000sharesofBrooklynUnionCommonStock,parvalue$.335pershare./ClassificationoftheBoardofDirectors.TheBrooklynUnionCertificateandtheBrooklynUnionBy-LawsprovidethattheBrooklynUnionBoardwillbedividedintothreeclasses,eachclasstoconsistasneailyaspossibleofone-thirdofthedirectorsandtobeelectedeverythirdyeartoserveathree-yearterm.TheHoldingCompanyCertificateandtheHolding,CompanyBy-LawsdonotprovidethattheHoldingCompanyBoardwillbedividedintoclasses.RemovalofDirectors;FillingVacanciesontiieBoardofDirectors.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethat,subjecttotherightsofholdersofHoldingCompanyPreferredStock,ifany,anydirectorservingontheHoldingCompanyBoardmayberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleastamajorityofthe.VotingPower,votingtogetherasasingleclass.TheBrooklynUnionCertificateandtheBrooklynUnionBy-Lawshavenocomparableprovision.UndertheNYBCL,unlessthecertificateofincorporationorby-lawsofacorporationprovidesotherwise,adirectormayberemovedonlyforcausebythevoteofamajorityofthevotescastatashareholdermeetingbytheholdersofsharesentitledtovotethereon.BoththeHoldingCompanyBy-LawsandtheBrooklynUnionBy-LawsprovidethatvacanciesontheBoardofDirectorsmaybe'illedbytheremainingDirectors,eveniflessthanaquorum.MeetingsofShareholders.TheHoldingCompanyCertificateandtheHoldingCompanyBy-LawsprovithataspecialmeetingofshareholdersmaybecalledonlybytheHoldingCompanyBoardpursuanttoaresolutionapprovedbyamajorityoftheentireHoldingCompanyBoard.TheBrooklynUnionBy-LawsprovidethataspecialmeetingofshareholdersmaybecalledbytheChairmanoftheBoardofBrooklynUnionorbytheBrooklynUnionBoardpursuanttoaresolutionapprovedbyamajorityoftheentireBrooklynUnionBoard.AinenCknentofCorporateCharterandBy-Laws.TheNYBCLprovidesthatanamendmenttoacorporation'scertificateofincorporationmaybeauthorizedbyvoteoftheboardofdirectors,followedbyavoteoftheholdersofamajorityofalloutstandingsharesentitledtovotethereonatameetingofshareholdersandtheby-lawsof,acorporationmaybeamendedbyavoteoftheholdersofamajorityofalloutstandingsharesentitledtovoteintheelectionofanydirectorsofthecorporationor,ifsoprovidedinthecertificateofincoiporationorby-laws,bytheboardofdirectorsbysuchvoteasmaybespecifiedtherein.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethatthe.affirmativevoteoftheholdersofatleast80percentoftheVotingStockthenoutstanding,votingtogetherasasingleclass,willberequiredtochangeoradoptanyprovisioninconsistentwiththeprovisions.thereinrelatingtocallingofspecialmeetingsofshareholders,theelectionofdirectors,fillingofvacanciesontheHoldingCompanyBoard,removalofdirectorsandtheamendmentofcertainprovisionstheHoldingCompanyBy-LawsandtheHoldingCompanyCertificate.The,BrooklynUnionCertificateissilentonsuchmattersandtheBrooklynUnionBy-Lawsprovidethatby-lawsmaybeamendedbytheBrooklynUnionBoardorbytheholdersofthesharesatthetime'ntitledtovoteintheelectionofanydirectorsandthatby-lawsadoptedbytheBrooklynUnionBoardmaybeamendedorrepealedbytheshareholdersinsuchmanner'.sForinformationconcerningLILCO,see"SelectedInformationconcerningLILCO-ComparisonofHoldingCompany'sCertificateofIncorporationandBy-LawstoLILCO'sCertificateofIncorporationandLaws."86 t'+cers.TheHoldingCompany'y-Lawsprovidethat,effectiveasofthe'firstanniversaryoftheconsummationoftheBindingShareExchanges,Dr.CatacosinosShallbeelectedChairmanoftheHoldingCompany'BoardandChairmanoftheExecutiveCommitteeoftheHoldingCompanyBoardandMr.CatellshallbeelectedChiefExecutiveOfficerofthe-HoldingCompany.ThisBy-Lawmaybemodifiedonlybytheaffirmativevoteoftwo-thirdsof-theentireHoldingCompanyBoard.ForinformationconcerningLILCO,see"SelectedInformationConcerningLILCO-ComparisonoftheHoldingCompany'sCertificateofIncorporationandBy-LawstoLILCO'sCertificateofIncorporationandBy-Laws."r1Anti-TakeoverStatutesSection912oftheNYBCLprohibitsa"businesscombination"(asdefinedinSection912oftheNYBCL,generallyincludingmergers,salesandleasesofassets,issuancesofsecuritiesandsimilartransactions)byacorporationincorporatedundertheNYBCLorasubsidiaryofsuchcorporationwithaninterestedshareholder(asdefinedinSection912oftheNYBCL,generallythebeneficialownerof20percentormoreoftheNewYorkcorporation'svotingstock)withinfiveyearsafterthepersonorentitybecomesaninterestedshareholder,unless(i)priortothepersonorentitybecominganinterestedshareholder,thebusinesscombinationorthetransactionpursuantto'whichsuchpersonorentitybecameaninterestedshareholderhasbeenapprovedbysuchNewYorkcorporation'sboardofdirectors,'or(ii)thebusinesscombinationisapprovedbytheholdersofamajorityofthevoting'powerofthe-capitalstock'ofsuchNewYorkcorporation,excludingsharesheldbytheinterestedshareholder,atameeting'calledforsuchpurposenoearlierthanfiveyearsaftersuchinterestedshareholder's"stockacquisitiondate."Inaddition,Section912oftheNYBCLspecifiescertainminimumconsiderationthatmustbepaidin'abusinesscombination'ithaninterestedshareholder.PotentialConflictofInterestofCertainPersonsintheCombinationandtheLIPATransactionEmploymentAgreementwithRobertB.Catell.Pursuanttoth'eBrooklynUnion/LILCOAgreement,iftheBrooklynUnionShareExchangeisconsummated,theHoldingCompanywillenterintoanemploymentagreementwithMr.Rt>bertB.CatelleffectiveupontheEffectiveTinie'providingforhimtoassumethepositionsofPresidenta'ndChiefOperatingOffic'ercommencingupontheEffectiveTiineandforhimtoserveasChiefxecutiveOfficer'oftheHoldingCompanyforafouryearperiodcommencingonthefirstanniversaryoftheEffectiveTime.Underthisemploymentagreement,Mr.Catellistoreceivecompensationontermstobemutuallyagreedupon,butnotlessthanwhat,hereceivedfromBrooklynUnionasofthedateoftheOriginalAgreement.Mi'."Catellwouldalsobeeligibletoreceiveincentivecompensationrelatedto'achievingthesynergiescontemplatedtoberealizedfromtheCombination.Inaddition,theBrooklynUnion/LILCOAgreementprovidesthattheemploymentagreementwithMr.Catelliso'therwisetocontaintermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.PVestingof,CertainBenefitsforBrooklynUnion'sDirectorsandOfficers.UnderBrooklynUnion'sLong-TermPerformanceIncentiveCompensationPlanforofficersandcertainkeyemployeesofBrooklynUnion(the"PerformancePlan"),upona"changeofcontrol,"asdefinedinthePerformancePlan,alloptionstopurchasesharesofBrooklynUnionCommonStockgrantedunderthePerformancePlanwillbecomeimmediatelyexercisableandremainexercisablefortheremainderoftheiroriginalterm.ThePerformanceFlanalsoprovidesforawardsofperformanceshares,whichentitletheemployeetoreceiveeitheranumberofsharesofBrooklynUnionCommonStockbaseduponachievementofperformancegoalsoveraperformanceperiodorapaymentincashinlieuofsuchshares.UnderthetermsofthePerformance.Plan,upona"changeofcontrol,"theperformancegoalsforallsuchperformanceshareswillbedeemedtohavebeenmetandtheemployeewillreceiveeithertheawardedperformancesharesortheequivalentincash,proratedbasedontimeelapsedduringtheperformanceperiod.TheCombinationwillconstituteachangeofcontrolforthepurposesofthePerformancePlan.TheBrooklynUnion/LILCOAgreementprovidesthatupontheEffectiveTime,eachunexpiredandunexercisedoptiontopurchasesharesofBrooklynUnionCommonStockunderthePerformancePlan,whetherestedorunvested,willbeautomaticallyconvertedintoanoptiontopurchasethesamenumberofsharesofldingCompanyCommonStockatthesamepershareprice.87.
Asof.June23,1997,optionstopurchase640,500shares,of.BrooklynUnionCommonStockand13,000performanceshareshavebeen,grantedto,BrooklynUnionexecutiveofficers-as'agroupunderthePerformancePlan(including155,000optionsand>4,000performancesharestoMr.Catell,theChairmanandChief:ExecutiveOfficer;92,000optionsand2;300,performa'nceshares,toCraig'G:Matthews,PresidentandChiefOperatingOfficer;56,000optionsand2,300performancesharesto'HelmutW.,'Peter,ViceChairman;42,000'optionsand1;100performancesharestoVincentD.Enright;SeniorVicePresidentandChief,FinancialOfficer;and25,000optionsand550performancesharestoAnthonyJ.,DiBrita,SeniorVicePresident).Such'optionsweregrantedonNovember15,1995andNovember20,1996andvestinequalinstallmentsoverthreeyearperiodsfromtheapplicablegrantdate.AllsuchperformancesharesvestoverathreeyearperiodendingSeptember30,1998,an'dthe,actualnumberofperformancesharesearnediscontingentuponachievingcertainperformancetargets."Uponconsummationof.theCombination,allsuchoptionswillbevestedandexercisableforthesamenumberofsharesofHoldingCompanyCommonStock.,atanexercisepricerangingfrom$27i00to$30.50per.share.andtheperformancetargetsforall.suchperformanceshareswillbedeemedtohavebeenmetandpaymentforaproratedportionofsuchperformanceshares.willbemadeassoonaspracticableafterconsummationoftheCombination.'4j.II*~r44IIBrook1ynUnionChangeof,Control,Severance,Plan;Underther,;BrooklynUnionSenior.ExecutiveChangeofControlSeverancePlan(the"SeverancePlan",),participants,areentitledtoreceivecertainseverancebenefitsiftheiremploymentisterminatedunder,certain,circumstanceswithinthree.yearsafter'atransaction<hatmeetsthe,definitionof"change.of.control",.undei)theterms-oftheSeverancePlan.A,terminationbytheemployerwithout''cause"(asdefined,in.theSeverancePlan)or.bytheparticipant,for"goodreason"(asdefinedintheSeverancePlan,andincludingasignificantdiminutionofresponsibilities,an-assignmenttoinappropriateduties,amaterialreductionincompensationorbenefits,oratransferofmorethan50miles),withinthelaterof(i)theendof15monthsafterthe-"change'ofuontrop'or(ii)90day5afterthe"'gbodreason"ev'entoccu'rs,willresultinthepaymentofbenefitsundertheSeverancePlan.rlr)'IJ44'llIIAparticipant,whobecomesentitledtoseverance,benefitswill,receivethefollowing:a,lumpsumcashpaymentofsalary,previouslydeferredcompensationandaccruedvacationpaythroughthe,dateofterminationtothe,extentnot.alreadypaid,aprorata,bonusforthe"yeaioftermination,andthe,participant'.sbasesalaryanbonusfortheSeverancePeriod(asdefinedbelow);continuedemployeewelfarebenefitsfor.'theSeverancePeriod;alumpsumpaymentequal,tothe"actuarialvalue,oftheadditionalbenefitsunderBrooklynUnion'squalified,andsupplementalretirementplanstheparticipantwouldhaveteceivedhadhe,remainedemployedfortheSeverancePeriod;andoutplacementpervIcesatacostofgotmore,than$30,000.Inaddition,theparticipantwillreceiveanadditionalpayment,ifnecessary,tomakesuchparticipantwholeforanyexcisetaxonexcessparachutepaymentsimposedontheparticipant.The.,"SeverancePeriod"isaperiodofeithertwoorthreeyears(asdesignatedbytheOrganizationandNoinmatingCommitteeoftheBrooklynUnionBoard)or,ifless,theperiodremaininguntiltheparticipantreachesmandatoryretirementage.Forthepurposesofeligibilityforretirement;medical,dentalandlifeinsurance,'theparticipantwillbedeemedtoremainemployedfortheentireSeverancePeriod;"r,Th'e'BrooklynUnionBoardhasde'signatedasparticipantsintheSeverancePlanMr.Catell,CraigG.Matthews,Helm'utW.Peter,,VincentD.Enright,Anthony.J.DiBritatand6otherSenior,VicePresidentsofBrooklynUnion(eachwiththree-yearSeverancePeriods),and12VicePresidentsofBrooklynUnion'(eachwithtwo-yearSeverancePeriods).IftheCombinationoccurredonJanuary',1998,andallparticipantsintheplanwereterminatedimmediatelythereafter,itisestimatedthattheaggregateafter-taxcostoftheseverancebenefitsundertheSeverancePlanwouldbeapproximately$19',833,000.II'4IIr44)4III88 tSecurityOwnershipofCertainBeneficialOwnersand'Management4'urrent.OwnershipofBrooklynUnionCommonStack.Thefollowingtablesetsforthinformation.asofJune23,1997,withrespecttothenumberofsharesofBrooklynUnionCommonStockbeneficiallyownedand/orBrooklynUnionCommonSto'ckequivalentsgrantedunderthePerformancePlan,theDirectors'eferredCompensationPlanortheCorpoiateIncentiveCompens'ationPlan,whichdo.notconferany'otingrights,ownedbg'(i)directorsandcertain'eXecutiveofficersofBrooklynUnionand(ii)alldi'rectorsandexecutiveofficersofBrooklynUnionasagroup.oeeTotalofCommonStockBeneficiallCommonStockCommonStockName,~-OwnedAEquivalentsBeneflctallyOwnedEquivalentsR.B'.Catell26,002'8,481-'-7,521K.I.Chenault.'""'...'.."''.',4091,551',2,858'A.S.Christensen....'...''.'""9,745.4,977'"4,768'D.H.'Elliott'''''9,323',750.7,573A.H.Fishman...'.."......'.'...'...''',738""',738'4,000'.L.Larocca....5,0073,3541,653C.G'.Matthews;"','15,817'll,'4974,320E.D.Miller7,4595,9461,51'3J.Q.Riordan''*'"',298',500,',798C.Uribe.''2,046'"02,046"'H.W.'eter.14,&17o,'0,483~4,334A.J.DiBrita6,000,"4,681',319Y.D.Enright'...""...''"6,406''"'',397'r2,009AllDirectorsandExecutiveOfficersasagroup,includ-'ngthosenamedabove,atotal"of24persons......'..'184,235'23,963'0,272e'sr'~Thefollowing'tablesetsfo'ithcertaininformatioriwith'respectto'thesharesofBrooklynUnionCommontockownedbyeachpersonknownbyBrooklyriUniontobethebeneficialownerofmore'han5%oftheissuedandoutstandingBrooklynUnionCo'mmonStock,asofMarch31,1997.ITtneofClass,,,.NamesandAddresses.OwnedPercentageofCloseCommonStock...".:...:...:.LongeisiandLightingCompany9,948,688oI6.6%175EastOldCountryRoadHicksville,NY11801.t1*Representsthenumberofsharesthatmaybepurchasedpursuant.totheAmendedBrooklyn,UnionStockOptionAgreementattachedasAnnexCanddescribedinthisJointProxyStatement/Prospectus.See"TheStock,OptionAgreements.l'tlCertainBusinessRelationshipsBetweenBrooklynUnionandLILCOInthenormalcrourseofbusiness,LILCOpurchasesnaturalgas,'paysgastransportationchargesandpurchase'sco-'generationpowerfromentitiesinwhichBrooklynUnionholdsanownershipinterest.BrooklynUnionpurchasesnaturalgasand'paysgastransportationchargestoentitiesinwhichLILCOhasanequityinterest,andentitiesin'whichBrooklynUnionhas'anequityinterestsellelectricitytoandpurchasegastransportationservicesfromLILCO.Allsuchtransactionsareatarms'-length'oratratesasrequiredbylaw'.to89 SELECTEDINFORMATIONCONCERNING'LILCO"".:-,'i-"",~r,.Recomniendation's'oftheLILCO'Board'heLILCO,BoardbelievesthatthetermsofeachoftheCombinationand.the,LIPATransactionarefairto,and,.inthebestinterestsof,LILCOanditsshareholders.Accor'dingly,theLILCOBoard,'by,,aunanimousvote,hasadoptedtheBrooklyn.UnionlLILCOAgreement,andthe,LIPAAgreem'ent,,andunanimously=recommendstheadoptionofeachbytheLILCOshareholders.TheLILCOBoardbelievesthateachoftheCombinatio'nandtheLIPATransactionrepresentsasignificantstrategicopportunityforLILCO.'~~u'">>Theterms'oftheBrookly'nUnion/LILCOAgreement,includingtheRatios,weretheresultofarm'-lengthnegotiationsbetweenBrooklynUnionand,LILCO.InfixingtheRatiosinthenegotiationprocess,LILCOmanagementreliedtoalargeextentonthefinancialanalysesofDillonReadsetforthbelowunder.,",OpinionofLILCO'.sFinancialAdviser."TheLILCO.Boardconsultedwithitsfinancialadvisorandlegal,advisors;andmanagementofLILCO.Aftercareful'reviewandconsideration,theLILCOBoarddeterminedthatitheCombinationisadesirabletransactionfrom-,thestandpointoftheLILCOcommonshareholders.,InreachingitsdecisiontoapprovetheBrooklynUnion/LILCOAgreement,theLILCOBoard,consideredthefollowingfactors:.(i)thecurrentand,historicalmarketpricesoftheBrooklynUnionCommonStock;and,tlieLILCOCommonStock(includingthefactthattheclosingpricesofBrooklynUnionCommonStockandLILCOCommonStockonDecember26,1996,were$30.625and$19.125,respectively;(ii)informationconcerningthefinancialperformancecondition,business,operationsandprospectsofeachofBrooklynUnionandLILCO;,(iji)theeffectsoftheCombinationonLILCO',,sshareholders,includingthesignificantprenuumtoLILCO,sthencurrentmarketprice,reflectedintheratioandtheopportunitytoshareintheanticipatedbenefitsofownershipofthecombinedenterprise;(iv)theexpectedfederalincometaxtreatment,oftheCombinationas,ataxableexchange'toshareholdersunlesstheLIPAAgreement,isterminatedpriorto'theconsummationof,theCombination(asdescribedunder"FederalIncomeTaxConsiderations-MaterialFederalIncomeTaxConsequences");(v)theimmediatereductioningasandelectricratestoreflectanticipatedsynergy,savings,as,contemp]ated,byBrookly~UnionandLILCO,andthebeliefthatcustomers,willbenefitfrom,abrqaderrangeofinnovativeenergyproduc~andservices;(vi)thetermsoftheBrooklynUnion/LILCO.Agreement,whichprovideforbalancedrepresentationsandwarranties,conditionstoclosingandrightstotermination;and(vii)theopinionofLILCO's,'financial'a'dvisor,DillonReadthat,asof.tlie'date.'thereof.andbaseduponthefactor's,and:ass'umptionsdescribedinsuch'o'pinion,theOriginalRatiowas,fair~fromafinancialpointofviewtothe.holdersofsharesofLILCOCommonStock.Indeterminingthat.the~CombinationisfairtoLILCO'sshareholders,theLILCOBoardconsideredtheabovefactorsasawholeand'didnotassignspecificorrelativeweightstothem.IntheviewoftheLILCOBoard,eachofthefactorslistedabovereinforceditsbeliefthatthecombinedentitywouldhaveexcellent'businessprospectsgoing'"forward.'-Because'ILCO'sshareholderscollectively'ouldownapproximately66%(or68%'iftheLIPA'iTransactionisconsummated).ofthecombinedentity'baseduponthecapitalizationofthecompaniesasofDecember29,1996,thedateoftheOriginalAgreement;theprospectsofsuchentitywereanimportantfactortotheLILCOBoardindeterminingwhethertoapprovethetransaction.1InreachingitsdecisiontoapprovetheLIPAAgreement,theLILCOBoardconsideredthefollowingfactors:(i}thepurchasepricepayablepursuanttoth'eLIPAAgreementcloselyapproximatesthebookvalueoftheassetstobeoyvnedbyLILCOat,thetimeoftheLIPAClosing;(ii)LILCO,shareholderswillcontinuetoow'nanequityinterestinthegeneratingfacilitiesandcommonplantcurrentlyownedbyI;ILCO,aswellasitsgasoperations(whichhaye'enjoyedsignificantrevenueandearningsgrowthinrecentyears);(iii)consummationoftheLIPATransactionisexpectedtoresultinsubstantialelectiicratedecreaseswhicharenotobtainablethrougiianyothermeans;(iv)thesaleofLILCO'sShoreham-relatedregulatoryassets,whichLILCObelieveswouldhaveafavorableimpactontheHoldingCompany'screditratingandthetradingvalueofitsequitysecurities;(v)thestructureoftheLIPATransactionincludeslong-termserviceagreementspursuanttowhichsubsidiariesoftheHoldingCompanywillmanageonbehalfofLIPAtheday-to-dayoperationofthetransmissionanddistributionsystemonLongIslandandtherebypromotethecontinuedreliabilityofthatsystem(includingtheabilitytotheHoldingCompany'sentireworkforceinanintegratedfashiontoassistinrestoringserviceafterm90 storms);,(vi).thepreservationofLILCO'scurrentworkforcewithoutlayoffs;,(vii)theexpectedfederalincometaxtreatmentoftheLIPATransaction(asdescribedunder"FederalIncomeTaxConsiderations-MaterialFederalIncomeTaxConsequences");(viii)Brooklyn'Union'sconsentto,andsupportfor,theLIPATransaction;(ix)theincreaseintheRatio'ofHoldingCompany.CommonStockissuableintheCombinationforeachshareofLILCOCommonStockfrom0.803to0.880(andtheresultingincreaseofHoldingCompanyCommonStocktobeownedbyLILCOshareholdersfromapproximately66%toapproximately68%);(x)thetermsoftheLIPAAgreement,whichprovideforreasonablerepresentationsandwarrantiesandrightstotermination;(xi)thesupportfortheLIPATransactionexpressedpubliclybyseniorNewYorkStateofficialsandrepresentatives;and(xii)theopinionofDillonReadthat,asofthedatethereofandbaseduponthefactorsandassumptionsdescribedinsuchopinion,theConsiderationtobereceivedpursuanttotheLIPAAgreementwasfairfromafinancialpointofviewtoLILCO.TheLILCOBoardconsideredthefactthatconsummatingtheLIPATransactionwouldhavetheeffectofmakingtheCombinationtaxabletoLILCOshareholders,butdeterminedthattheoverallbenefitsanticipatedtobereceivedfromtheLIPATransactionoutweighedthedetrimentassociatedwiththecreationofataxliabilityonLILCOshareholders.IndeterminingthattheLIPATransactionisfairtoLILCO'sshareholders,theLILCOBoardconsideredtheabovefactorsasawholeanddidnotassignspecificorrelativeweightstothem.IntheviewoftheLILCOBoard,eachofthefactorslistedabovereinforceditsbeliefthatsuchtransactionwasfair.BecauseLILCO'sshareholderscollectivelywouldownapproximately68%oftheHoldingCompany(baseduponthecapitalizationofLILCOandBrooklynUnionasofDecember29,1996)assumingtheCombination,isalsoconsummated(or100%oftheHoldingCompanyifonlytheLIPATransactionisconsummated),theprospectsoftheHoldingCompanyineacheventualitywereanimportantfactortotheLILCOBoardindeterminingwhethertoapprovethetransaction.THELILCOBOARD,BYUNANIMOUSVOTE,HASADOPTEDEACHOFTHEBROOKLYNUNION/LILCOAGREEMENTANDTHELIPAAGREEMENT,BELIEVESTHATTHETERMSOFEACHOFT&JECOMBINATIONANDTHELIPATRANSACTIONAREFAIRTOLILCO'SSHAREHOLDERSANDUNANIMOUSLYRECOMMENDSTHATTHESHAREHOLDERSOFLILCOVOTETOADOPTACHOFTHEBROOKLYNUNION/LILCOAGREEMENTANDTHELIPAAGREEMENT.NInconsideringtheserecommendationsoftheLILCOBoard,shareholdersshouldbeawarethatcertainmembersofLILCO'smanagementandtheLILCOBoardhavecertaininterestsintheCombinationthataredifferentfrom,orinadditionto,theinterestsofshareholdersofLILCOgenerallyandthatcouldpotentiallyrepresentconflictsofinterest.TheLILCOBoardwasawareoftheseinterestsandconsideredthem,amongothermatters,inadoptingtheBrooklynUnion/LILCOAgreement.See"-PotentialConflictsofInterestsofCertainPersonsintheBindingShareExchanges."OpinionofLILCO'sFinancialAdvisorOnDecember29,1996,theLILCOBoardreceivedthewrittenopinionofDillonReadthat,asofthedateoftheopinion,theOriginalRatiowasfairfromafinancialpointofviewtotheholdersofLILCOCommonStock.ThefulltextofDillonRead'sopiniondatedDecember29i1996,whichdescribestheassumptionsmade,mattersconsideredandlimitsonthereviewundertaken,isattachedheretoasAnnexFtothisJointProxyStatement/Prospectusandisincorporatedhereinbyreference.DillonRead',sopiniondoesnotconstituteareconimendationtoanyholderofLILCOCommonStockastohowsuchholdershouldvoteattheLILCOMeeting.HoldersofLILCOCommonStockareurgedtoreadtheopinioninitsentirety.IIInarrivingatitsopinion,DillonReadhas,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtoLILCOandBrooklynUnion;(ii)'reviewedcertainfinancialforecastsandotherdataprovidedtoDillonReadbyLILCOandBrooklynUnionrelatingtothebusinessandprospectsofLILCOandBrooklynUnion;(iii)conducteddiscussionswithmembersoftheseniormanagementofLILCOwithrespecttothebusinessandprospectsofLILCO;(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinesSDillonReadbelievedtobegenerallycomparabletothoseofLILCOandBrooklynUnion;(v)reviewedthehistoricalmarketpricesandtradingvolumesofLILCOmmonStockandBrooklynUnionCommonStock;(vi)comparedthe"proposed,financialtermsofthebination.withthefinancialterms,ofcertainothertransactions"whichDillonReadbelievedtobegenerally91 comparabletotheCombination;(vii)analyzedtherespectivecontributions'intermsofrevenue,earnings,cashflow'andcommonequityofLILCOandBrooklynUnion'othecombinedcompany,andtherelativeownershipoftheHolding'Company.,aftertheCombinationbythecurrentholdersofLILCOCommonStockandBiooklynUnionCommonStock;,(viii);consideredtheproformaeffectoftheCombination,on.LILCO'scapitalizationratios,earnings,cashflowandbookvaluepershare;(ix)revieWedthe,OriginalAgreementand(x)conductedsuchotherfinancialstudies,analysesandinvestigations,and,.consideredsuchother.infqrmation,aswasdeemednecessaryorappropriate.,~p~Inconnectionwithitsreview,DillonReaddidnotassumeanyresponsibilityforindependentverificationofanyoftheforegoinginformationandrelied,withtheconsentofLILCO,onsuchinformationbeingcompleteand,accurateinallmaterialrespects.Inaddition,Dillon,Readdid,notmakeanyindependentevaluationorappraisal,ofanyoftheassets.or,liabilities(contingentorotherwise)ofLILCOorBrooklynUnionoranyoftheirrespectivesubsidiaries,norwasDillonReadfurtiishedwithanysuchevaluationorappraisal;Withrespecttothefinancialforecastsreferredto,aboye,DillonRead,withLILCO'sdirection,assumedthatthey,hadbeenreasonablypreparedonbases.reflectingthebestcurrentlyavailableestimatesandjudgments'fLILCO',sandBrookly'nUnion'smanagementastothefuture"financialperformanceofeach,company.ForitsDecember29,1996opinion,DillonRead'sreviewofBrooklynUnion'scurre'ntandanticipatedfuture'operations,financialconditionandprospectswasbasedentirely,.onpublicinformation(exceptforcertainlimiteilinternalprojectionsreferredto"above),and%a'sthereforelimitedinscope.DillonReaddidnothold'discu'ssionswithanymembersofBrooklynUnion'sseniormanagementin'connectionwithitsDecember29,1996'"opinion.DillonReadassu'med,initsDecember'29,1996opinion,'thetransaction'wouldbetreatedastax-free'toboth'I'.ILCO'ahdholdersofLILCOCommonStockandwouldbeaccountedforasapoolingofinteres'ts.Further,DilloiiRead'sopinionwasbasedoneconomic,monetary,andmarketconditionsexistingonthedatethereof.II'tiN'HTheOriginalRatioandtheLIPARatioweredeterminedthrougharm'-lengthnegotia'tionsbetwee'nLILCOaridBrooklynUnion.LILCOdidnotplace'anylimitatiorisuponDillonReadregardingtheprocedures"tobefollowedorfactorsto'beconsideredinrenderingitsopinion.DillonReadhasnot'beenrequestedtosolicit,norhasitsolicited,offers'or'LILCOfromthirdparties.1'nconnectionwithrenderingitsopinionDillonReadconsideredavarietyofvaluationmethodswhicharesummarizedbelow.Thefollowingsummary,describesthe,analysesperformedbyDilfonReadinthisregardandiiscompleteinallmaterialrespects.StockTradingHistory.DillonReadreviewedtheperformanceofthe,persharemarket,priceofLILCOCommonStockandBrooklynUnionCommonStockovertheperiodfromDecember31,1993toDecember24,1996.DillonReadalsocalculatedtheratioofthepersharemarketpriceofLILCOCommonStocktothepersharemarketpriceofBrooklynUnionCommonStockovertheperiod.Thisanalysisshow'edthatovertheperiod,LILCOCommonStocktr'adedataratio'ashighas0.927andasloveas0.560comparedtotheprice'ofBrooklynUriionCommonStock.Thisanalysiswasu'tilizedtoprovidehistoricalperspectivefortheman'nerin'whichthepublictradingmarkethad'valuedLILCOandBrooklynUnionrelativetoeachother';~II'III'CorilnbutionA/i'aiysis.DillonReadcalculatedthe'contrib'ufionofeachof'LILCOandBrooklynUniontotheHoldin'gCompany.with'respecttooperatingrevenu'es,'oper'atingcashflow(earningsbeforeinterest,taxes,depreciationandamortization,"EBITDA"),netincome,cashflowfroinoperations(definedascashpiovidedbyoperatingactivitiesbeforechangesinworkingcapital),projectedyear,2000netincome,netproperty,,plant,andequipment,totalassets,totaldebt,bookvalue,ofcommonequity,total,capitalization,netdebt,(definedastotaldebtlesscashequivalents),andnetbookcapitalization(definedasbookcapitalizationlesscashequivalents)forthelatesttwelvemonthperiodorasoftheilatest,balancesheet,date.Inaddition,DillonReadcalculatedtherelativevaluationcontributionofeach;ofLILCOandBrooklyn,UniontotheHoldingCompanywithrespecttothemarketvalueofcommonequityasof,,December24,1996,themarketvalueofcommonequityasofOctober3,1996(oneweekprior,'tothepublication,ofreportswhich.suggested,thatatakeoverofLILCObyLIPAwouldneed'obeinitiatedbyyear-end1996tobesuccessful),thecomparablecompanytradinganalysisvaluation,thediscountedcashflowanalysisvaluation.ThesecalculationsyieldedamountsreflectingLILCO'scontribut92 trangingfrom59.9percentto88.4percentofthetotal'proforma.combinedamount.BasedontheOriginalRatioof0.803,theholdersofLILCOCommonStockwillownapproximately66percentofHoldingCompanyCommonStock.BasedontheLIPA'atioof0.880,theholdersofLILCOCommonStockwillownapproximately68percentofHoldingCompanyCominonStock.ComparableCompanyTradingAnalysis.UsingpubliclyavailableinformationDillonReadcompared,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchasnetincome,projectednetincome,(medianearningspershareestimatesfor1996,1.997and1998reportedbyInstitutionalBroker'EstimateSystemorbasedonInstitutionalBrokersEstimateSystemestimatesandexpected5-yearearningspersharegrowthratesfromZacksInvestmentResearch,Inc.),revenues,earningsbeforeinterestandtaxes("EBIT"),EBITDA,cashfiowfromoperationsandthebookvalueofcommonequityofLILCOaridBrooklynUniontocertainothercompanieswhich,inDillonRead'sjudgment,weregenerallycomparabletoLILCOandBrooklyn'Unionforthepurposeofthisa'nalysis.ThefactorsDillonReadconsideredinselectingcompaniesforcomparisonincludedsize,geographiclocation,financialconditionandscopeofbusinessoperations.ForLILCO,thecompaniesusedinthecomparisonconsistedofConsolidatedEdisonCompanyofNewYork,Inc.,NewYorkStateElectric&GasCorporation,NewEnglandElectricSystem,NortheastUtilities,'ublicServiceEnterpriseGroupIncorporated,andRochesterGasandElectricCorporation.ForBrooklynUnion,thecompaniesusedinthecomparisonconsistedofAGLResources,Inc.,MCNEnergyGroupInc.,NICORInc.,PeoplesEnergyCorporation,andWashingtonGasLightCompany.HbEquitymarketvalues(definedasthemarketpricepercommonsharemultipliedbytheoutstandingnumberofcommonshares)asamultipleofeachoftheindicatedstatisticsforL'ILCOandBrooklynUnion,respectively,wercasfollows:(i)latest12-month"netincome-8.8xand17,1x(ii)projectedoractual1996netincome-9;Oxand'17.1x",(iii)projected1997netincome-8.8xand14.6x;(iv)projected1998netincome-8,7xand13.4x;(v)latest12-monthcashflowfromoperations-2.6xand7.6x;and'(vi)bookvalueofcommonequityonSeptember30,1996-0.91xand1.70x.Netmarketcapitalizations(definedasequitymarketvalueplusthebookvalueofdebtandpreferredstocklesscashandcashequivalents)asamultipleofeachoftheindicatedstatisticsforLILCOandBrooklynUnion,respectively,wereasfollows:(i)latest12-monthrevenues-2.4xand1.6x;(ii)latest12-monthEBITDA-6.1x'and9.2x;andi(iii)latest12-monthEBIT-8.0xand13.5x.ThiscomparisonwasusedtoprovideaperspectiveonthepresentmarketvaluationofeachofLILCOandBrooklynUnion.1khITherangeandmeanfortheequitymarketvalueasamultipleofeachoftheindicatedstatisticsforthegroupsofcomparablecompaniesforLILCOandBrooklynUnion,respectively,'were.asfollows,(i)latest12-monthnetincome:forLILCOcomparables-7.9xto11.4xwithameanof10.0x;forBrooklynUnioncomparables-11.1x-to17.4xwithameanof15.4x;(ii)projectedoractual1996netincome:forLILCOcomparables-8.3xto18.3xwithamean.of11.1x;forBrooklynUnioncomparables-11.1xto17.8xwithameanof15.6x;(iii)projected1997netincome:forLILCOcomparables-'8.2xto10.7xwithameanof9.7x',forBrooklynUnioncomparables-13,3xto16,0xwithameanof14.5x;(iv)projected1998netincome:forLILCOcomparables-7.9xto10.5xwithameanof9.5x;forBrooklynUnioncomparables-12.5xto14.7xwithameanof13.6x;(v)latest'12-monthcashfiowfromoperations:forLILCOcomparables-2.0xto5.9x;withameanof4.2xforBrooklynUnioncomparables-6.0xto7.8x,.with'amean:of7.0x;and(vi)"bookvalueofcommonequity'nSeptember30,1996:"forLILCOcomparables-"0.70xto1.33$withameanof1.04x;forBrooklynUnioncomparables-1;70xto2.65xwithameanof2.06x.PPTherangeandmeanfornetmarketcapitalizationasamultipleofeachoftheindicatedstatisticsforthegroupsofcomparablecompanies'orLILCOandBrooklynUnion,respectively,wereasfollows:-(i)latest12-monthrevenues:forLILCOcomparable'1.4xto2.1xwithamean'f1.7x;forBrooklynUnioncomparables-1,4xto1.8xwithameanof1.6x;(ii)latest'12-monthEBITDA."forLILCOcomparables-4.7xto6.5xwithameanof5.6x;forBrooklynUnioncomparables-6.7xto9.6xwithameanof8.0x;and(iii)latest12-monthEBIT:forLILCOcomparables-6.9xto10.2xwithameanof8.4x;forBrooklynUnioncomparables-8.5xto5.8xwithamean'f11.8x.Thecomparablecompanytrading.analysisisavaluationmethod:-usedbyDilloneadtodeterminewhetherLILCOorBrooklyn'nionwerereasonablyvaluedatexistingmarketpricesin93 relationtosimilarcompaniesandinrelationtoeachother.DillonReadconcludedthatbothLILCOandBrooklynUnionwerereasonablyvaluedatexistingmarketpricesin.relationtosimilarcompaniesandinrelationtoeachother.DillonReadbelievesthatthisanalysissupportsDillonRead'sviewthattheOriginalRatiowasfairtotheholdersofLILCOCommonStockfromafinancialpointofview.ComparableUtiVityTransactions,Analysis.Usingpubliclyavailableinformation,DillonReadcomparedcertaintermsof.mergerssimilartothetransactionbetweenLILCOandBrooklynUnion.DillonReadcomparedtherelativeownershipandmarketpremiuminrecentutilitymergers-of-equalstransactionsandelectric/gasutilitycombinationswhich,inDillonRead'sjudgmentwerecomparabletotheCombinationforthepurposeofthisanalysis.Themerger:of-equalstransactions,whichwereanalyzedincludedonecompletedtransaction(MidwestResources"Inc.andIowa-IllinoisGas&Electric,Company)andfourpendingtransactions(Delmarva'Power&LightCompanyandAtlanticEnergyInc.;BaltimoreGas&ElectricCompanyandPotomacElectricPowerCompany;PublicServiceCompanyofColoradoandSouthwesternPublicServiceCompany;andNorthernStatesPowerCompanyandWisconsinEnergyCorporation).Theelectric/gasutilitycombinationswhichwereanalyzedincludedfivependingtransactions(PugetSoundPower&LightCompanyandWashingtonEnergyCompanyInc.;DukePowerCompanyandPanEnergyCorp.;EnovaCorporationandPacificEnterprisesInc.;HoustonIndustriesIncorporatedandNorAmEnergyCorp;;,andEnronCorp.andPortlandGeneralCorporation).4Withrespecttorelativeownership,incomparablemergers-of-equalstransactions,the.largercompanyineachmergerreceivedbetween50percentand62percentofthecombinedcompany.Incomparableelectric/gascombinations,theelectriclpartnerreceivedbetween48.percentand83percentofthecombinedcompany.Incomparison,LILCOshareholderswillownapproximately66or68percentoftheHoldingCompanyaftertheCombination.Withrespecttothemarket;premium,inrecentmergers-of-equalstransactions,thelargercompanypaidapremiumtotheclosing,marketpriceonthedaybeforethemergerannouncementofbetween0.3percentand23,3percent.Inelectric/gascombinations,thelargercompanypaidapremiumtotheclosingmarketpriceonthedaybeforethemerger'nnouncementofbetween11.4percentand48.8percent.LILCO,asthejargercompany,willreceivea29percentpremiumtotheclosingmarketpriceon..the'daybeforetheannouncementoftheOriginalAgreement.DillonReadbelievesth'atthisanalysis-supportsDillonRead'sviewthattheOriginalRatiowasfairtotheholdersofLILCOCommonStockfromafinancialpointofview.IDiscountedCashFlowAnalysis.DillonReadperformedadiscountedcashflowvaluationbaseduponprojectionsfurnishedbythemanagementsofLILCOandBrooklynUnion.WithrespecttoprojectionsforLILCOandBrooklynUnion,DillonReadassumed.thatsuchprojectionswerereasonablyprepareduponbasesreflectingthebestavailableestimatesandjudgmentsofthemanagementsofLILCOandBrooklynUnion,respectively.Utilizingtheseprojections,DillonReaddiscountedtoapresent.value,undervaryingassumeddiscountrates,(i)thefreeunleveragedcashflowsthroughtheyear2001forLILCOandthroughtheyear2002forBrooklynUnionand(ii)theprojectedterminal,valueat,theend,oftheyear2001forLILCOandattheendoftheyear2002forBrooklynUnion,utilizingvariousassumedmultiplesofoperatingcashflow(EBITDA)andoperatingincome(EBIT).This.analysisindicatedthat,assumingdiscountratesrangingfrom8.0percentto9.0percentfor'LILCOandterminalvaluemultiples,rangingfrom5.5xto6.5xforEBITDAand7.5xto9.5xforEBIT(asindicatedbycomparablecompanytradinganalysis),the.netafter-taxpresentvalueofthefuturecashflowsrangedfrom$15.24to$28.53pershareforLILCO,onastahd-alonebasis.Thisanalysisalsoindicatedthat,assumingdiscountratesrangingfrom8.0percentto9.0percentforBrooklynUnionandterminalvaluemultiplesrangingfrom7.0xto9.0xforEBITDAand11.0xtol3.0xforEBIT(asindicatedbycomparablecompanytrading'analysis),thenetafter;taxpresentvalue,offuturecashflowsrangedfrom$23.85to$41.54pershareforBrooklynUniononastand-alonecrasis.Thediscountedcash'flowanalysisisavaluationmethodusedbyDillonReadtodeterminewhetherLILCOandBrooklynUnionwerereasonablyvaluedinrelationtoeachother.DillonReadbelievesthatthisanalysissupportsDillonRead'sviewthattheOriginalRatiowasfairtotheholdersofLILCOCommonStockfromafinancialpointofview.'IProFormaAnalysis.DillonRead,reviewedcertainproformafinancialinformationforthecombineentityresultingfromtheCombinationbasedonLILCO'sandBrooklynUnion'smanagements'rojectio94 coveringtheperiodfrom1997to2000.Withrespect.toprojectionsforLILCOandBrooklynUnion,DillonReadassumed'thatsuchprojectionswerereasonablyprepareduponbasesrefiectingthebestavailableestimatesandjudgmentsofthemanagementsofLILCOandBrooklynUnion,respectively.ThisanalysisindicatedthatearningspershareresultingfromashareexchangeattheOriginalRatioof0.&03wouldbedilutivetoLILCOshareholdersovertheperiodanalyzed.DillonReadalsoperformedanearningspersharesensitivityanalysis.Forthepurposeofthisanalysis,DillonReadassumedthatLILCOelectricratesonastand-alonebasiswerereduced10percent.The10percentreductionisbaseduponpublic:pronouncementsbyrelevantpartiesofthemagnitudeofratereductionnecessaryforLILCO'selectriccustomers.It.shouldbenotedthatthisanalysis.wasforillustrativepurposesonlyandthatthistransactionisnot.conditionedonsucharatereduction.Usingthisassumption,theearningspersharesensitivityanalysisindicatedthatearningspersharewouldbeaccretivetoLILCOshareholdersovertheperiodanalyzed.PreliminaryestimatesofsavingsrelatedtothecombinationofLILCOand'BrooklynUnionasidentifiedbythemanagementsofthetwocompaniesweredevelopedtoquantifyefficienciesresultingfromoperatingsynergies,plantconstructiondeferralsandgreatereconomiesofscaleinthepurchasingof-fuelandotherresourcesusedbyLILCOandBrooklynUnion.Thesepotentialpre-taxsavings(aftercertaincosts)ofapproximately$1billion'vertenyearswereassumedtoflowtoratepayersandwillbenefittheHoldingCompany'sshareholdersonlythroughimprovedcompetitiveposition(duetolowerrates).DillonReaddidnotindependentlyattempttoverifytheestimatedsavingslevels,nordidDillonReadattemptitsownestimationofpotentialcostsavingsresultingfromtheCombination.Initsanalysis,DillonReadassumedthatallofthetotalcostsavingswouldbeflowedthroughtoratepayers.IftheHoldingCompanywereallowedbyone,ormoreregulatoryauthoritiestoretainanyofthecostsavings,theresultingprojectedearningswouldbecorrespondinglyhigher.LIPATransaclionAnalysisOnJune26,1997,theLILCOBoardreceivedDillonRead'swrittenopinionthat,asofthedateoftheopinion,theConsiderationwasfairfromafinancialpointofviewtoLILCO,ThefulltextofDillonRead'sopiniondatedJune26,1997,whichdescribestheassumptionsmade,mattersconsideredandlimitsonthereviewundertaken,isattachedheretoasAnnexFtothisJointProxyStatement/Prospectusandisincorporatedhereinbyreference.DillonRead'sOpiniondoesnotconstitutearecommendationtoanyholderofLILCOCommonStockastohowsuchholdershouldvoteattheLILCOMeeting.HoldersofLILCOCommonStockareurgedtoreadtheopinionlnitsentirety.Inarrivingatitsopinion,DillonReadhas,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtoLILCO,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtoitbyLILCO,includinghistoricalandprojectedfinancialinformationfortheT&DBusiness,theNuclearAssetsandtheRegulatoryAssets(eachasdefinedherein),(iii)conducteddiscussionswithmembersoftheseniormanagementofLILCOwithrespecttothebusinessandprospectsofLILCO,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinessDillonReadbelievedtobegenerallycomparabletotheT&DBusiness,(v),comparedpubliclyavailablefinancialandstockmarketdataforcertainutilitieswithhighconcentrationsofnucleargenerationtocertainutilitieswithlittleornonucleargeneration,(vi)reviewedthefinancial,termsofcertaintransactionsinvolvingtransmissionanddistributionassets,(vii)consideredtheproformaeffectoftheLIPATransactionontheHoldingCompany'sfinancialcondition,(viii)reviewedtheLIPAAgreement,(ix)consideredthefinancialtermsoftheBasicAgreements(asdefinedherein),(x)consideredtheeffectoftheLIPATransactiononthependingBrooklynUnion/LILCOAgreement,and(xi)conductedsuchotherfinancialstudies,analysesandinvestigations,,andconsideredsuchotherinformation,asDillonReaddeemednecessary.orappropriate.Inconnectionwithitsreview,DillonReaddidnotindependentlyverifyanyoftheforegoinginformationnd,withtheconsentoftheLILCOBoardofDirectors;reliedonitbeingcompleteahdaccurateinallmaterialspects.Inaddition,DillonReaddidnotmakeanyindependentevaluationorappraisalofanyoftheassetsor95 liabilities(contingentorotherwise)ofLILCOoranyofitssubsidiaries,norwasDillonReadfurnishedwithanysuchevaluationorappraisal.Withrespecttothefinancialforecastsreferredtoabove,DillonRead,withLILCO'sdirection,assumedthattheyhadbeenreasonably'preparedonbasesreflectingthebest'urrentlyavailableestimatesandjudgmentsofmanagementastothe,fUturefinancialperformanceofLILCO,LILCO'stransmissionanddistributionbusiness("T&DBusiness"),certainregulatory'assets,("RegulatoryAssets")andLILCO's18%interestintheNineMilePoint2nuclear.powerplant(the"NuclearAssets").DillonReadalso,.atLILCO'sdirection,reliedonLILCO'sadviceregardingthetaxconsequencesoftheLIPATransaction.DillonReaddidnotattempttoq'uantifytheregulatory'riskinherentintheRegulatoryAssets,whichwillcompriseamajority.oftheassetsLILCOwillownimmediatelypriortotheLIPATransaction.Further,DillonRead'sopinionwasbasedoneconomic,monetaryandmarketconditionsexistingonthedatethereof.~,t,fTheConsiderationwasdeterminedthrougharm'-lengthnegotiationsbetweenLILCOandLIPA.LILCOdidnot'.placeany,.limitations,uponDillonReadregarding-,the,procedures.,tobefollowedor,factorstobeconsideredinrenderingitsopinion.DillonReadhasnot.beenrequestedtonorhasitsolicitedoffersforLILCOorany'ofitsbusinessesorassetsfromthirdparties.,,,Inconnection,withrenderingitsopinion,DillonReadconsideredavarietyofvaluationmethodswhicharesummarizedbelow.Thefollowingsummarydescribestheanalyses,performedbyDillonReadinthisregardandiscompleteinall.materialrespects.:'4iT&DBusinesstv'IComparableCompanyTradingAnalysis.DillonReadobservedthatcur'rentlynopubliclytradedcompaniesconsistingsolelyofelectrictransmissionanddistributionbusinessesexist.DillonReaddeterminedthatgasdistributioncompaniesandwaterutilitieshavesimilarbusinessandregulatorychmacteristicsandshouldthereforeprovideareasonablycomparablebasisforanalysis.Usingpubliclyavailableinformation,DillonReadcompared,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchasbookvalue'ofcommonequityofLILCO'sT&DBusinesstocertairiothercompanieswhich,inDillonRead'sjudgment,weregenerallycomparableforthepurposeof'thisanalysis.Thefactor'sDillonReadconsideredinselectingcompaniesforcomparisonincludedsize,geographiclocation,financialconditionandscopeofbusinesstoperations.ThewaterutilitycompaniesusedinthecomparisonconsistedofAmericanWaterWorks.Company,Inc.,AquariunCompany,ConsumersWaterCompany,PhiladelphiaSuburbanCorporation,'SouthernCaliforniaWaterCompanyand"United%'aterResources,Inc.The,gasdistributioncompaniesused'nthecomparisonconsistedofAGLResourcesInc.,BrooklynUnion,MCNEnergyGroupInc.,'ICORInc.,'eoplesEnergyCorporation,andWashingtonGasLightCompany.\Therangeforthee'quitymarketvalueasamultiple'ofbookvaluefor'hegasdistributioncompanieswas1.5'to'2.4times'andforthewaterutilitycompanieswas1.4-to2.0time'.Themedianwas1.8timesforthegaddistributioncompaniesand1.6tim'esforthewaterutilitycompanies.'DillonReadappliedr'atiosof1.7'to2.0timesand1.4to1.6times,respectively;totheimputedbookvalueofthef&DBusiness,'resultinginanimpliedvaluefortheT&DBusinessof$920millionto$1,082millioninthecase'ofthegasdistributioncompanies'nd$758millionto$866"millioninthecaseofthewaterutilitycompanies.C4ComparableTransactionsAnalysis.Usingpubliclyavailableinformation,DillonReadcomparedceitaintermsoftransactionsinvolvingthesaleofelectrictransmissionanddistributionpropertiestotheLIPATransaction.DillonReadalso'onsideredthattherehavebeenasyetveryfewsaletransactionsof-transmissionanddistributionassetsforwhichpublicinformationisavailable.ThetransactionsDillonReadincludedinitsanalysiswere:SouthwesternPublicServiceCompany'sacquisitionofpropertyfromTNPEnterprises;Inc.;UnionElectricCompany'ssaleofpropertiestoIESIndustriesInc.andCIPSCOIncorporated;andUtilicorpUnited'sacquisitionofpropertyfromCentelCorporation.g1Thetransactions-hhda.rangeofprice-to-bookmultipleof'1.6to-2.0times'.,DillonReadappliedthesmultiplestotheT&DAssets,resultinginan,impliedvalueof$866million,to$1,082million,96
~RegulatoiyAssetsIII~iIIDiscountedCashFlowA'nalysis.DillonR'cadpeiformeda'is'countedcashflow'valuationof'theRegulatoryAssetsbaseduponprojectionsfurnishedbythemanagementofLILCO.Withrespect'toprojections,DillonRead,assumedthatsuchprojectionswerereasonablynrepareduponbasesreflectingthe,bestavailableh~'nl"~~.IIestimatesandjudgmentsofthemanagementofLILCO.Utilizingtheseprojections,DillonReaddiscountedtoapresentvalue,underassumed'discountratesrangingfrom7.65percentto11percent,thefreeunleveragedcashflowjfortheremaining'lives,of,theRegulatoryAssets.ThisanalysisiritIicatedthatthenetafter-taxpresentvalueoffuturecashflowsrangedfrom'$742millionto$1,600million,afterdeductingthe,tmputeddebtandprefeiredstock.NuclearAssets.'Dillon,Readobservedth'atcurrentlyno'publiclytradedutilitieswithexclusivelynuclearget)erationassetsexist,andtodatether'avenot.beenanysaletrans'actionsirivol'vingonly'uclea'rassets.Therefore,DillonReadreliedonlimitedpublicinformationtoestablish'avaluationrangefortheNuclearAssets.DillonReadcomparedthemedianmarket-to-bookra'tioofelectric'utilitieswithhighconcentrationsofnuclearassetstothosewithlittleornonuclearassets".Electricutilitiesweredividedintothreecategories:thosewhere'generatingcapacitywascomyrIsedof>40%qrmorenuclear,,generation("ConcentratedNuclearGroup"),.thefiveutilitieswjththelargestabsoluteamount,ofnuclear>generation("LargeNuclearGroup"),andthosewithnoor,insignificantamountsofnIjcIeargeneration(,"Pop-nuclearGroup".,).The,ConcentratedNuclearGroupwascomprised,ofRochesterGas&ElectricCorporation,UnicornCorporation,,PecoEnergy,CompanyandDukePowerCompany.ThyLargeNuclearGroupwascomprisedofUnicornCorporation,DukePowerCompany,EntergyCorporation,PecoEnergyCompanyandTheSouthernCompany.TheNon-nuclearGroupconsistedof40utilitiesthroughouttheUnitedStatesofvaryingsizeandcharacteristics,selectedonlyonthebasisofnoorinsignificantnuclearexposure.The.medianmarket-to-bookratio:for.eachgroup'was:.99timesfortheConcentratedNuclearGroup,.96fortheLargeNuclearGroup,and.1.65forthe'on-'nuclearGroup.'n.:average,both'roupsofnucleartutilities",.tradedatadiscount'.tonon-nucleaiutilitiesofbetween24%.and42%.'illon,Readcalculated,aniinpliedyalue,oftheNuclearAssetsbymultiplyingamarket-to-bookratioof,9,to,1.0,timestheimputedboo/valueoftheNuclearAssets.The,imputedbook~valuewas,calculatedbymultiplyingthe,bookvalueof(heassetsby39%,whichIepreseptedthecommonetluiIycomponentofLILCO'scapjtalizatjon,,'JhiscalculationresultedinanimpliedmarketvalueoftheNuclearAssetsof$241millionto$267mflljon,',Pro'For'maAn'alysis'.Dillongepd;comparedLILCO'sDecember,31,1997projected.stand-alonebalance'sheetto,aproformaLILCO,balancesheetforthesamedateadjustedfortheLIPATransaction.DillonReadobservedthattotalassets,of>PILCOwoulddeclineasa~result,oftheLIPATransactionfromapproximately$11.6billion,toapproximately$4.3billion,largelyasaresultofregulatoryassetsdecliningfromapproximately,$6.6billionto,approximately$141million.DillonReadalsoobservedthatLILCOwouldhavenonetdebt(totaldebtminuscash)asaresultof-:the~'LIPATransaction,'DillbnRead'believ'ed,therefore,thattheLIPA'ransactionwouldresultinanimprovementin'LILCO'sprojecte'dfinancialcondition.*Usingpubliclyavailableinformation,DillonReadcalculated,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchaslatesttwelvemonthsrevenues,operatingcashflow,opeiatingincome,.cashflowfromoPerations,and1998estimated>netincomeforcertain.companiesinlinesofbusiness.comparabletothose.LILCOisexpectedtobeinvolvedinaftertheLIPATransaction.WhileLILCOwill'beengaged'inthegenerationofelectricityandthemanagementofanelectric:transmissionanddistributionsystem,the'majority,of,itsearningsareexpectedtobederivedfromthe,gasdistribu'tionbusiness.DillonReadtherefore.'used.as:itsgroupoficomparablecompaniesgasdistribution.companies,specificallyAGLResourcesInc.,IBrooklynUnion,'MCNCorporation,NICORIncPeoplesEnergyCorporationandWashingtonGasLightompany.Iniselectingcompanies'.forcomparisons,DillonReadalsoconsideredsize,geographic.locationandnancialcondition.Themultiples.forthisgroupofcompaniesrangedas"follows:netmarketcapitalizationto97 revenue-1.2to1.9;netmarketcapitalizationtooperatingcashflow-6.8to10.7;netmarketcapitalization'tooperatingincome-9.9to19.0;equitymarketvaluetoestimated1998netincome-12.6to14.7;and.equitymarketvaluetolatesttwelvemonthscashflowfromoperations-6.5to8,4.IIDillonRead,initsjudgment,baseduponthebusinessmixofLILCOcomparedtothecomparablecompanies,'appliedmultiplesgenerallyatthelowendoftherang'eforcomparablecompaniestotheresultsforLILCOproformafortheLIPATransaction(andbeforeanyincomefromthereinvestmentofthecashproceedsfromtheLIPATransaction)toarriveatimpliedvaluesforLILCO.Themultiplesappliedandtheresultingimpliedvalueswereasfollows:ImpliedMultlplesValuesApplied(millions)Revenues.1.3-1.4$761-$931OperatingCashFlow...............6.8-7.5$681-$899OperatingIncome.....10.0-11.0$859-$1,089NetIncome.....12.5-13.2$975-$1,030CashFlowfromOperations..............6.5-7.0$1,014-$1,092DillonReadconsideredthefactthatpUrsuanttotheBrooklynUnion/LILCOAgreement,thenumberofsharesLILCOshareholderswouldreceiveinrespectofeachoftheirsharesofLILCOCommonStockwouldbeincreasedfrom.803to.880asaresultoftheLIPATransaction.TheLILCOshareholders'wnershipoftheHoldingCompanywouldthereforebeincreasedfrom66%to68%.FUpdatedOpinionTheLILCOBoardhasreceivedanupdatedopinionfromDillonReadthat,asofthedateofthisJointProxyStatement/Prospectus,theOriginalRatioandtheLIPARatiowerefairfromafinancialpointofviewto-theholdersofLILCOCommonStock.ThefulltextofDillonRead'.sopiniondatedJune26,1997,whichdescribestheassumptionsmade,mattersconsideredandlimitsonthereviewundertaken,isattachedheretoasAnnexFtthisJointProxyStatement/Prospectusandisincorporatedhereinbyreference.DillonRead'sopiniondoesnoconstitufearecommendationtoanyholderofLILCOCommonStockastohow'suchholdershouldvoteattheLILCOMeeting.HoldersofLILCOCommonStockareurgedtoreadtheopinioninitsentirety.InadditiontoupdatingtheanalysesdescribedaboveoftheOriginalRatio,DillonRead,initsupdatedopinion,consideredthefinancialconsequencestheLIPATransactionwouldhave,ifconsummated,ontheCombination.Specifically,DillonReadconsideredthattheLIPATransactionwouldresultin;(i)purchaseaccountingbeingapplied,ratherthanpoolingaccounting,whichDillonReadassumedwouldbeapplicableintheabsenceoftheLIPATransaction;(ii)theconsiderationreceivedbytheholdersofLILCOCommonStockbecomingtaxable,whereasDillonReadassumedthatintheabsenceoftheLIPATransactiontheCombinationwouldbetax-free;and(iii)anincreaseintheexchangeratiotobereceivedbytheholdersofLILCOCommonStockto.880,from.803intheabsenceoftheLIPATransaction.Inconnectionwithrenderingitsupdatedopinion,DillonReadconsideredavarietyofvaluationmethods,includingthosedescribedabove.Inaddition,DillonReadperformedtheanalysessummarized'below,,-ProFormaAnalysisDillonReadcomparedLILCO'sDecember31,1997projectedstand-alonebalancesheettoaproformabalancesheetforthecombinedentityresultingfromtheCombinationforthesamedateadjustedfortheLIPATransaction.DillonReadobservedthattotalassetsoftheHoldingCompanywouldbeapproximately$7.0billioncomparedtoapproximately$11.6billionforLILCO.Themajorreasonforthedeclineinassetswasthereductioninregulatoryassetsfromapproximately$6.6billiontoapproximately$141million.DillonReadalsoobservedthattheHoldingCompanywouldhavenetdebt(totaldebtminuscash)ofapproximately$349millioncomparedtoapproximately$5.3billionforLILCO.DillonReadbelieved,therefore,thattheHoldingCompanywouldhavanimprovedprojectedfinancialconditionascomparedtoLILCOstand-alone.."98 tComparableCompanyTradingAnalysisUsingpubliclyavailableinformation,DillonReadcalculated,baseduponmarkettradingvaluesatthetime,multiplesofcertainfinancialcriteria,suchaslatesttwelvemonthsrevenues,operatingcashflow,operatingincome,cashflowfromoperations,and1998estimatednetincomeforcertaincompaniesinlinesofbusinesscomparabletothosetheHoldingCompanyisexpectedtobeinvolvedinaftertheCombinationandtheLIPATransaction.WhilesubsidiariesoftheHoldingCompanywillbeengagedinthegenerationofelectricity'andthemanagementofanelectrictransmissionanddistributionsystem,themajorityofitsearningsareexpectedtobederivedfromthegasdistributionbusiness.DillonReadthereforeusedasitsgroupofcomparablecompaniesgasdistributioncompanies,specificallyAGLResourcesInc.,BrooklynUnion,MCNCorporation,NICORInc.,PeoplesEnergyCorporationandWashingtonGasLightCompany.Inselectingcompaniesforcomparison,DillonReadalsoconsideredsize,geographiclocationandfinancialcondition.Themultiplesforthisgroupofcompaniesrangedasfollows:netmarketcapitalizationtorevenue-1.2to1.9;netmarketcapitalizationtooperatingcashflow-6.8to10.7;equitymarketvaluetoestimated1998netincome-12.6to14.7;andequitymarketvaluetolatesttwelvemonthscashflowfromoperations-6.5to8.4.,DillonReadappliedmultipleswithintherangeforcomparablecompaniestothe1998projectedresultsfortheHoldingCompanyproformafortheLIPATransaction(andbeforeanyincomefromthereinvestmentofthecashproceedsfromtheLIPATransaction)toarriveatimpliedtradingvaluesfortheHoldingCompany(beforeassigninganyvaluetocash).Themultiplesappliedandresultingimpliedvalueswereasfollows:ImpliedValuesforhfultlplestheHoldingAppliedCompany1,.4-1.5$12.72-$14.617.0-8.0$12.71-$16.5010.0-12.0$14.59-$20.2613.5-15.0$16.55-$18.396.5-7.0$14.83-$15.97'4Revenues.OperatingCashFlowOperatingIncome...........NetIncomeCashFlowfromOperations...*Basedonthe.880exchangeratioTransaction.andbeforeassigninganyvaluetothecashImpliedValuespershareofLILCO~$11.19-$12.86$11.18-$14.52$12.84-$17.83$14.57-$16.18$13.05-$14.05proceedsfromtheLIPADillonReadthencalculatedtheafter-taxcashproceedsthattheHoldingCompanywouldreceivepursuanttotheLIPATransaction,dividedsuchamountbytheexpectedsharesoutstandingoftheHoldingCompany,andmultipliedtheresultbythe.880exchangeratiotoarriveatacashamountperLILCOshare.DillonReadaddedsuchpershareamounttotheimpliedvaluesperLILCOshareresultingfromtheComparableCompanyTradingAnalysistoarriveatatotalvalueperLILCOshareof$23.32to$26.40.Finally,DillonReadcomparedsuchimpliedvaluetoLILCO'sstockpriceonDecember27,1996(thelasttradingdatepriortotheannouncementoftheCombination)of$19.375andnotedthattheimpliedvaluewashigherbybetween20and36percent.Thepreparationofafairnessopinioninvolvesvariousdeterminationsastothemostappropriateandrelevantmethodsoffinancialanalysis=andtheapplicationof,thesemethodstoparticularcircumstances,and,therefore,the,opinionandanalysisarenotreadilysusceptibletosummarydescription.Accordingly,notwithstandingtheseparatefactorsandanalysessummarizedabove,DillonReadbelievesthatitsanalysesmustbeconsideredasawholeandthatselectingportionsofitsanalysesandotherfactorsitconsidered,withoutconsideringallfactorsandanalyses,couldcreate'amisleadingviewoftheevaluationprocessunderlyingitsopinions.DillonReaddidnotassignanyparticularweighttoanyanalysisorfactoritconsideredbut,rather,madequalitativejudgmentsbasedonitsexperienceinrenderingsuchopinionsandoneconomic,monetaryandmarketconditionsthenpresentastothesignificanceandrelevanceofeachanalysisandfactor.Initsanalyses,DillonReadassumedrelativelystableindustryperformance,regulatoryenvironmentsandgeneralbusinessandeconomicconditions,llofwhicharebeyondLILCO'scontrol.AnyestimatescontainedinDillonRead'sanalysesdonotnecessarilydicateactualvalue,whichmaybesignificantlymoreorlessfavorablethanstatedtherein.Estimatesofthe99 financialvalueofcompaniesdonotpurporttobeappraisalsornecessarilyreflectthepricesatwhichcompaniesactuallymaybesold.Inrenderingitsopinions,DillonReadexpressednoviewsastotherangeofvaluesatwhichtheK,ILCOCommonStockmay'radefollowingtheconsummationofthetransactionsdiscussedherein,nordoesDillonReadmakeanyrecommendationstoaholderofLILCOCommonStockwithrespecttohowsuchholdershouldvoteonthetransactionsdiscussedhereinortotheadvisabilityofdisposingoforretainingtheHoldingCompanyCommonStockfollowingthetransactionsdiscussedh'erein.DillonReadisaninternationallyrecognizedinvestmentbankingfirmwhich,aspartofitsinvestmentbankingbusiness,regularlyisengagedinevaluatingbusinessesandtheirsecuritiesinconnectionwithmergersandacquisitions,negotiatedunderwritings,competitivebids,secondarydistributionsoflistedand,unlisted'securities,privateplacementsandvaluationsforestate',corporateandotherpurposes.TheLILCOBoardselectedDillonReadonthebasisofthefirm's'expertiseandreputation.'I(PursuanttotheengagementletterbetweenLILCOandDillonRead,'ILCOhaspaidDillonReadthefollowingamounts:$2.5millionupontheexecutionoftheengagementletter,whichincludescompensationforfinancialservicesrenderedtoLILCOfromtimetotimesinceApril1992relatedtoproposalsforatransactionsuchastheLIPATransaction,$2.5millionupontherenderingofDillonRead'sfairnessopiniontotheLILCOBoardaddressingtheCombinationand$2.5'millionupontherenderingofDillonRead'sfairnessopiniontotheLILCOBoardaddressingtheLIPATransaction.LILCOhasalsoagreedtopay'DillonRead'afeeuponconsummationofeitherorbothtransactionsequalto.4percentoftheaggregate'amountofconsiderationreceivedbyLILCOoritscommonshareholders,less$6.25millionofthepaymentsmentionedabovewhichwillhavepreviouslybeenpaid.DillonReadhas,inthepast,performedvariousinvestmentbankingservicesforLILCOforwhichDillonReadhasbeencompensated.Intheordinarycourseofbusiness,DillonReadtradesthedebtandequity'ecuritiesofLILCOandBrooklynUnionforitsownaccountandtheaccountsofitscustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.PotentialConflictsofInterestofCertainPersonsintheCombinationandtheLIPATransactionEmploymentAgreementwithWilliamJ.Calacosinos.PursuanttotheBrooklynUnion/LILCOAgreement,theHoldingCompanywillenterintoanemploymentagreementwithDr.WilliamJ.CatacosinoseffectiveasoftheeffectivetimeoftheCombination(the"EffectiveTime"),providingforhimtoassumethepositionsofChairmanoftheBoard,ChairmanoftheExecutiveCommitteeandChiefExecutive,OfficeroftheHoldingCompanycommencingupontheEffectiveTimeandforhimtoserveasaconsultanttotlteHoldingCompanyforafiveyearperiodcommencingonthefirstanniversaryoftheEffectiveTime,whichiswhenhe,ceasestobeChiefExecutiveOfficerpursuanttothetermsoftheBrooklynUnion/LILCOAgreement.Underthisemploymentagreement,Dr.Catacosinosistoreceivecompensationontermstobemutuallyagreedupon,butnotlessthanwhathereceivedfromLILCOasofthedateoftheOriginalAgreement,Dr.'atacosinoswouldalsobeeligibletoreceiveincentivecompensationrelatedtoachievingthesynergiescontemplatedtoberealizedfromtheCombination.Inaddition,theBrooklyn,Union/LILCOAgreementprovidesthattheemploymentagreementwithDr.Catacosinosisotherwisetocontaintermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutive.officersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.VestingofCertainBenefitsforLILCO'sDirectorsandOgcers.UnderLILCO"sAnnualStocklncentiveCompensationPlan(the"StockPlan"),intheevent,aStockPlanparticipant'semploymentwithLILCOisterminatedfor,amongotherreasons,a"changeincontrol,"asdefinedintheStockPlan,suchparticipant.shallbeentitledtoreceive,payment,assoonaspracticableafterthecloseoftheplanyearduringwhichsuchterminationofemploymentoccurs,ofaprorataportionofsuchparticipant'sLILCOCommonStockaward,ifany,forthecurrentplanyear.TheCombinationandtheLIPATransactionwilleach.constituteachangecontrolforpurposesoftheStockPlan.100 Under~LILCO'sOfficers'ong-TermIncentivePlan(the"IncentivePlan"),awardsarepaidintwoiristallments'eachofwhichiscontemplatedtobemadeinsharesofLILCOCommonStock.Theawardsforeachperformanceperiod(initially1996-1997andthereaftereachconsecutivethree-yearperiod)aredividedinto,twoequalportions:(i)afiftypercentvested,portion;and(ii)'afiftypercent:contingentportion.'hecontingent'portionissubjecttoamandatorydeferralofoneyearfromthedateofthepaymentoftheaward.IntheeventanIncentivePlanparticipant'semploymentwithLILCOisterminatedfor,amongotherreasons,a"changeincontrol,"asdefinedintheIncentivePlan,suchparticipantshallbeentitledtoreceivepayment,assoonaspracticableafterthecloseofthe'"performanceperiodduringwhichsuchterminationofemploymentoccurs,of(i)the,entirebalanceofsuchparticipant'scontingentaccountatthecloseoftheplanyearduringwhichterminationofemploymento'ccursand(ii)apro-rataportionofsuchparticipant'saward,ifany,forthe'currentperformanceperiod,asdeterminedbyCompensationandManagementAppraisalCommitteeoftheLILCOBoardofDirectors.'-TheCombinationandtheLIPATransactionwilleachconstituteachangeincontiolforpurposesoftheIncentivePlan.,UnderthetermsofLILCO'sDirectors'tockUnitRetainerPlan(the"RetainerPlanl'),eachnon-employeedirectorofLILCOis.,requiredtoapplyatleast50%ofhisorher.annualretainertothepurchaseofLILCOCommonStockunits.AllocationofLILCOCommonStockunitsundertheRetainerPlanaremadeautomatically,onthedateduringeachfiscal.quarteronwhichthequarterlyinstallmentoftheannual.retainerispaid.>>UndertheRetainer,Plan,thevalueoftheunitswhichwillbecreditedtoeachnon-employeeDirector'saccounton,aquarterlybasiswillbedeterminedbydividingtheaggregateamountofcashcreditedto,suchaccountbytheclosingpricepershareofLILCOCommonStock,asreportedonaNewYorkStockExchangelistingofcompositetransactions,onthefirsttradingdayofthecalendarmonthinwhichtheparticipant'sretainerispaid.TheamountsaccumulatedpursuanttotheRetainerPlanwillbehelduntilsuchtimeas(i)aparticipantceasestoserve'saDirectoror'ConsultingDirector;(ii)a'ar'ticipant'sdeath;or(iii)'achangeincontrol,asdefinedintheRetainerPlan.TheCombinationandtheLIPATransactionwilleachconstitttteachangeincontr'olfor.purposesoftheRetainer,Plan.H~gfLILCOalsohasaRetirementPlanforDirectors(the"RetirementPlan"),providingbenefitstoDirectorswh'o'aie'notor'whohavenotbeenQfficersofLILCO.'Directorswho'haveservedinthatcapacityformoretharifiveyearsqualifyasparticipantsundertheRetirementPlan.TheRetirement'Planprovidesforamonthlybenefitequaltoone-twelfth'ofthehighestannualretainerpaid'toeach,partic'ipant.Afullbenefitis'availableforparticipantsw'hoservefortenyearswithareductionofone-'sixtiethfo'reachmonthofservicelessthantenyears.UndertheRetirementPlan,paymentofbenefits,istobeginwhentheDirectorceasestoserveasaDirectororConsultingDirectororreachesage65,whicheyerislater.'TheRetir'ementPlanal'soprov'idesthatintheeventof"=a"changeincontrol"(asdefinedintheRetirementPlan),the"valueofvestedbenefitscouldbep'ay'ableimmediately.TheCombinationandtheLIPA,TransactionwilleachconstituteachangeincontrolforpurposesoftheRetirement'Plan.'CTheBrooklynUnion/LILCOAgreement'proVidesthatattheEffectiveTime,'eachshareofLILCOCommonStockheldundertheRetainerPlan,theIncentivePlanandtheStockPlanwillbeautomaticallyexchangedforthesamenumberofsh'aresofHoldingCompanyCommonStockforwhichoneshareofK,ILCOCommonStockwasexchanged.F~rLILCOChangeinControlSeverancePlan."'ILCOhasenteredintoindividualemploymentagreementswitheachofits'officerstoprovidethemwithemploymentsecurityandtominimizedistractionsresultingfrompersonaluncertaintiesandrisksofachangeincontrolofLILCO.'Currently,theprincipalbenefits,undertheseagreements,payableiftheofficer'semploymentisterminatedforanyreason(includingvoluntaryresignation)withinthreeyearsofachangeincontrol(asdefinedintheseagreements),includingbyvirtueofanacquisitionofLILCO'sassetsorstock,priortoDecember31,1999,are!(i)severancepayequaltothreeyears'salary;(ii)acceleratedvestingandpaymentofthevalueofsupplementalretirementbenefits'atthetimeofachange'in'trol,whichareenhancedbythreeyearsofse'rvice;and(iii)continuationoflife,medicalanddentalinsuranceraperiodofthreeyears.LILCOhascreatedatrusttosupportpaymentofitsobligations,butremainsprimarily101 liableforthecompensationandretirementbenefitspayabletotheofficers.ThetrustwillmakesuchpaymentsonlytotheextentthatLILCOdoesnot.TheCombinationascontemplatedintheBrooklynUnion/LILCOAgreementandtheLIPATransactionwilleachresultinachangeincontrol(asdefinedintheseagreements)andentitleeachofficertothebenefitspayableunderthetermsoftheemploymentagreementsifsuchofficer'employmentisterminatedforanyreason.LILCOhasalsoenteredintoindividualemploymentagreementswithcertainofitsofficers(notincludingDr.Catacosinosandlyfr.Flynn),effectiveJuly1,1997,pursuanttowhich'suchofficersareemployedforaoneyeartermandareentitledtoreceivea,retentionbonusequalto20%ofthegreaterofjobvalueorsalary,iftheyarestillemployedby,LILCOoritsaffiliatesattheendofsuchtermorareterminatedwithoutcause(asdeterminedbytheChiefExecutiveOfficer)priortotheexpirationofsuchterm.Theseagreementshavebeenentered,intotoinducesuchofficerstocontinuetheiremploymentdespitethesignificantproposed'changestoLILCOdescribedelsewhereinthisJointProxyStatement/Prospectus.UnderthetermsofanemploymentcontractdatedasofJanuary30,1984,asamended,Dr.CatacosinoshasagreedtoserveasCEOofLILCOuntilJanuary31,2002.Dr.Catacosinos'ontractprovidesfor,amongotherthings:(i)afive-yearconsultingperiodfollowing'heterminationofhisemployment(otherthan,exceptafterachangeincontrol,forcause);(ii)supplementaldisabilitybenefits;and(iii)vestedretirementbenefits,whichwillbebaseduponaformulathatconsidershisageatretirement,hishighestannualsalary,thehighestbonushehasreceivedandthelengthofhisservicetoLILCOincludingserviceasaDirector,employeeorconsultant.TheCombination'andtheLIPATransactionwilleachresultinachangeincontrolunderthetermsofDr.Catacosinos'mploymentcontract.tComparisonoftheHoldingCompany'sCertificateofIncorporationandBy-Lawsto,LILCO'sCertiTicateofIncorporationandBy-LawsAuthorizedCapital.ThetotalauthorizedcapitalstockoftheHoldingCompanywillbe450,000,0sharesofHoldingCompanyCommonStock,parvalue$.01pershare,and100,000,000sharesofHoldinCompanyPreferredStock,parvalue$.0ipershare.ThetotalauthorizedcapitalstockofLILCOcurrentlyconsistsof150,000,000sharesofcommonstock,parvalue$5pershare,7,000,000sharesofpreferredstock,parvalue$100pershare,30,000,000sharesofpreferredstock,parvalue$25pershareand7,500,000sharesofpreferencestock,parvalue$1pershare.AttheLILCOMeeting,theLILCOshareholderswillbeaskedtoamendtheLILCOCertificateofIncorporation.toincreasethetotalamountofauthorizedLILCOCommonStockto160,000,000sharestoaccommodatethenumberofsharesofLILCOCommonStocktobereservedforissuancetoBrooklynUnioninconnectionwiththeLILCOStockOptionAgreement.RemovalofDirectors;FillingVacanciesont/ieBoardofDirectors.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethat,subjecttotherightsofholdersofHoldingCompanyPreferredStock,ifany,anydirectorservingontheHoldingCompanyBoardmayberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleastamajorityoftheVotingPower,votingtogetherasasingleclass.TheLILCOCertificateandtheLILCOBy-Lawshaveno.comparableprovision,buttheLILCOBy-LawsdorequireDirectorstoretireattheAnnualMeetingofShareholdersintheyearfollowingtheyearinwhichheorshereacheshisorherseventy-secondbirthdayunlessauthorizedbytheBoardtocontinuetoserve.However,noDirectormayservebeyondtheyearfollowingtheyearinwhichheorshereachestheirseventy-fifth,birthday.UndertheNYBCL,unlessthecertificateofincorporationorby-lawsofacorporationprovidesotherwise,adirectormayberemovedonlyforcausebythevoteofamajorityofthevotescastatashareholdermeetingbytheholdersofsharesentitledtovotethereon.BoththeLILCOBy-LawsandtheHoldingCompanyCertificateprovidethatvacanciesontheBoardofDirectorsmaybefilledbytheremainingdirectors.TheLILCOCertificateprovidesthatincertaincircumstances,theholdersofpreferred,stockorpreferencestockmayhavelimitedrightstoelecttwoadditionalDirectorsanifthereisavacancyamongthesetwoDirectors,theremainingDirectorhastheauthoritytoselectareplaceme102 tMeetingsofShareholders.TheHoldingCompanyCertificateandtheHoldingCompanyBy-LawsprovidethataspecialmeetingofshareholdersmaybecalledonlybytheHoldingCompanyBoardpursuanttoaresolutionapprovedbyamajorityoftheentireHoldingCompanyBoard.TheLILCOBy-Lawsalsoprovidethataspecialmeetingofshareholdersmaybecalledbyamajority,oftheDirectorsofLILCO.Inaddition,theLILCOBy-LawsprovidethatsuchameetingmaybecalledbythePresidentofLILCO,andthatitisthePresident'sdutytocallsuchameetingwheneverrequestedtodosoinwritingbyshareholdersowningone-fourthoftheoutstandingsharesofstockofLILCOentitledtovoteatsuchmeetings~AmendmentofCorporateCliarterand/3y-La>vs.TheNYBCLprovidesthat,anamendmenttoacorporation'scertificateofincoqiorationmaybeauthorizedbyvoteoftheboardofdirectors,followedbyavoteoftheholdersofamajorityofalloutstandingsharesentitledtovotethereonatameetingofshareholdersandtheby-lawsofacorporationmaybeamendedbyavoteoftheholdersofamajorityofalloutstandingsharesentitledtovoteintheelectionofanydirectorsofthecorporationor,ifsoprovidedinthecertificateofincorporationorby-laws,bytheboardofdirectorsby'uchvoteasmaybethereinspecified.TheHoldingCompanyCertificateandtheHoldingCompanyBy-Lawsprovidethattheaffirmativevoteoftheholdersofatleast80percentoftheVotingStockthenoutstanding,votingtogetherasasingleclass,willberequiredtochangeoradoptanyprovisioninconsistentwiththeprovisionsthereinrelatingtocallingofspecialmeetingsofshareholders,theelectionofdirectors,fillingofvacanciesontheHoldingCompanyBoard,removalofdirectorsandtheamendmentoftheHoldingCompanyBy-LawsandtheHoldingCompanyCertificate.TheLILCOCertificateprovidesthattheLILCOBoardofDirectorshasthepower,exceptasotherwiseprovidedbylaw,tomake,alter,amendorrepealtheLILCOBy-Laws.TheLILCOBy-LawsprovidethattheBy-Lawsmaybealtered,amendedorrescinded:(i)bytheshareholdersatanyregularorspecialmeetingbyvoteofamajorityofthesharesofstockissuedandoutstanding,providednoticeofsuchintentionbeincludedinthenoticeofmeeting,unlessotherwiseprovidedbylaw,or(ii)exceptwithregardtothesectionsconcedingquorumatshareholders'eetings,votingbyshareholders,dutiesandqualificationsofDirectorsandthenumberandnethodofelectionofDirectors,byvoteofamajorityoftheDirectorsofLILCOatanyregularorspecialmeeting,providedatleastthreedays'oticeofsuchintentionbegiventoeachmemberoftheBoard.0+cers.TheHoldingCompanyBy-Lawsprovidethat,effectiveasofthefirstanniversaryoftheconsummationoftheCombination,Dr.CatacosinosshallbeelectedChairmanoftheHoldingCompanyBoardandChairmanoftheExecutiveCommitteeoftheHoldingCompanyBoardandMr.CatellshallbeelectedChiefExecutiveOfficeroftheHoldingCompany.ThisBy-Lawmaybemodifiedonlybytheaffirmativevoteoftwo-thirdsoftheentireHoldingCompanyBoard.TheLILCOMeetingGeneral.ThepurposeoftheLILCOMeetingistoconsiderandvoteupon:(i)aproposaltoadopttheBrooklynUnion/LILCOAgreement;(ii)aproposaltoadopttheLIPAAgreement;(iii)aproposaltoelecttwelvedire'ctors;(iv)aproposaltoratifytheappointmentofErnst'YoungLLPasindependentauditorsforLILCOfortheperiodfromJanuary1,1997toMarch31,1998;(v)aproposaltoapprovetheLILCOAnnualStockIncentiveCompensationPlan;(vi)aproposaltoapprove'heLILCOEmploy'eeStockPurchasePlan',(vii)'aproposaltoapproveanamendmenttotheLILCOCertificateofIncorporationtoincreasethetotalnumberofauthorizedsliaresofLILCOCommonStock;and(viii)suchothermatters,ifany,asmayproperlybepresentedforconsideration.TheLILCOBoarddoesnotknow,asofthedateofmailingofthisJointProxyStatement/Prospectus,ofanyotherbusinesstobebroughtbeforetheLILCOMeeting.Theenclosedproxycardauthorizesthevotingofsharesrepresentedbytheproxyonalloth'ermattersthatmayproperlycomebeforetheLILCOMeeting,andanyadjournmentorpostponementthereof,anditistheintention'oftheproxyholderstotake'suchactioninconnectiontherewithasshallbeinaccordancewiththeirbestjudgment,TheLILCOBoard,byaunanimousvote,hasadoptedtheBrooklynUnion/LILCOAgreementandtheLIPAgreement,andrecommendsthatLILCOshareholdersvoteFORapprovaloftheBrooklynUnionAgreement103 andtherelatedreorganizationofLILCO,FORadoptionoftheLIPAAgreement,FORtheelectionofthenominateddirectors,FOR,ratificationoftheappointmentofErnst8'cYoungLLPasLILCO'sindependentauditorsfortheperiodfromJanuary1,1997toMarch31,1998,FORapprovaloftheAnnualStockIncentiveCompensationPlan,FORapprovaloftheEmployeeStockPurchasePlan;andFORapprovaloftheamendmenttoLILCO'sCertificateofIncorporationassetforthabove.tiDate,PlaceandTime;RecordDate.,TheLILCOM'ectingisscheduledtobeheldonThursday,August7,1997at3:00p.m.atTillesCenterforthePerformingArtsatLongIslandUniversityC.W.PostCampus,NorthernBoulevard,'Greenvale,NewYork11548.HoldersofrecordofsharesofLILCOCommonStockatthecloseofbusinessonJune26,1997,theRecordDate,willbeentitledtonoticeofandtovoteattheLILCOMeeting.'IVotingRights.AtthecloseofbusinessonJune23,1997,121,184,527sharesofLILCOCommonStockwereissuedandoutstanding.EachoutstandingshareofLILCOCommonStockasoftheRecordDateisentitledtoonevoteuponeachmatterpresentedattheLILCOMeetingexceptwithrespecttotheelectionofLILCODirectorsasdiscussedbelow.Theaffirmativevoteoftheholdersofatleasttwo-thirdsoftheoutstandingsharesofLILCOCommonStockisrequiredtoadopttheLIPAAgreementandtoadopttheBrooklynUnion/LILCOAgreementattheLILCOMeeting.Inaddition,theLIPAAgreementmustbeapprovedbythevoteof:1)theholdersofatleasttwo-thirdsoftheoutstandingsharesofLILCOcommonstockandpreferredstockentitledtovotethereon,votingtogetherasasingleclass;2)amajorityoftheoutstandingsharesofLILCOpreferredstockentitledtovotethereon,votingtogetherasaseparateclass;3)amajorityoftheoutstandingsharesofLILCOcommonstockvotingseparatelyasaclass;and4)theholdersofamajorityoftheoutstandingsharesofeachseriesofLILCOpreferredstockentitledtovotethereon,ineachcasevotingseparatelyasaclass.InconnectionwiththeproposaltoadopttheLIPAAgreement,eachoutstandingshareofLILCOCommonStockisentitledtoonevote,eachoutstandingshareofLILCOPreferredStockeligibletovotehavingaparvalueof$100pershareisentitledtoonevoteandeachoutstandingshareofLILCOPreferredStockeligibletvotehavingaparvalueof$25pershareisentitledtoone-quarter(i/4)ofavote.Amajorityofthevotingpowerofthesharesissuedandoutstandingandentitledtovote,presentinpersonorbyproxy,isnecessarytoconstituteaquorumforthetransactionofbusinessattheLILCOMeetingexceptwithrespecttotheelectionofLILCODirectors.Abstentionsandbrokernon-votes(i.e.,proxiesfrombrokersornomineesindicatingthatsuchpersonshavenotreceivedinstructionsfrom'thebeneficialownersorotherpersonsentitledtovotesharesastoamatterwithrespecttowhichbrokersornomineesdonothavediscretionarypowertovote)willbeconsideredpresentforthepurposeofestablishingaquorum.InaccordancewithNewYorkStockExchangerules,brokersandnomineesareprecludedfromexercisingtheirvotingdiscretionwithrespecttotheadoptionoftheBrooklynUnion/LILCOAgreementandLIPAAgreementandthus,absentspecificinstructionsfromthe.beneficialownerofsuchshares,arenotempoweredtovotesuchshareswithtespecttotheadoptionoftheBrooklynUnion/LILCOAgreementorLIPA,Agreement.Therefore,sincetheaffirmativevoteinpersonorbyproxy,oftheholdersoftwo-thirdsoftheoutstandingsharesofLILCOCommonStockontheRecordDateisrequiredtoadopttheLIPAAgreementandto,adopttheBrooklynUnion/LILCOAgreement,abstentionsandbrokernon-voteswillhavetheeffectofavoteagainsttheLIPATransactionandtherelatedreorganizationofLILCOortheBrooklynUnion/LILCOAgreement,asthecasemaybe.ShareholdersareentitledtovotecumulativelyfortheelectionofLILCODirectors.Eachshareholderisentitledtoanumberofvotesforsuchelectionequaltothenumberofvotesentitledtobecastwithrespecttothesharesheldbysuchshareholdermultipliedbythenumberofdirectorstobeelected,andmaycastallvotesforonenomineeordistributethevotesamongthenominees.TheelectionofeachDirectorshallbedecidedbypluralityvote.Asaresult,anysharesnotvotedforaDirector(whetherbywithholdingauthority,brokernon-voteorotherwise)willhavenoimpactontheelectionofDirectorsexcepttotheextentthatthefailuretovoteforaindividualresultsinanotherindividualreceivingalargernumberofvotes, tTheaffirmativevoteofamajorityofthevotescastbytheholdersofthesharesofLILCOCommonStockrepresentedattheLILCOMeetingandentitledtovotethereon,votingasasingleclass(providedthat;,thetotalvotecastrepresentsover50%ofthevotingpowerofallthesharesofLILCOCommonStockentitledtovotethereon)isrequiredtoapprove(i)theratificationoftheappointmentofErnst&YoungLLPasLILCO'sindependentauditorsfortheperiodfromJanuary1,1997toMarch31,1998,(ii)theAnnualStockJncentiveCompensationPlan,and(iii)theEmployeeStock.PurchasePlan.Theaffirmativevoteofamajorityof,theoutstandingsharesofLILCOCommonStockisrequiredtoapprovetheamendmentoftheLILCOCertificateofIncorporationassetforthinAnnexJhereto.Abstentionsandbrokernon-votesarenotcounted,indeterminingthevotescastinconnectionwiththeselectionofauditors.Withrespecttotheremainingmatterstobeactedupon,abstentionsfromvotingonsuchmattersaretreatedasvotesagainst,whilebrokernon-votesaretreatedassharesnotentitledtovote.IfaLILCOshareholderisaparticipantintheLILCOInvestorCommonStockPlan,theLILCOproxycardwillrepresentthesharesheldonbehalfoftheparticipantundertheInvestorCommonStockPlanandsuchshareswillbevotedinaccordancewiththeinstructionsontheLILCOproxycard.IfaparticipantintheInvestorCommonStockPlandoesnotreturnaLILCOproxycard,theparticipant'sshareswillnotbevoted.AsofJune23,1997,directorsandexecutiveofficersofLILCOandtheiraffiliatesownedbeneficiallyanaggregateof56,683sharesofLILCOCommonStock,orlessthanonepercentofthesharesofLILCOCommonStockoutstandingonsuchdate.DirectorsandexecutiveofficersofLILCOhaveindicatedtheirintentiontovotetheirsharesofLILCOCommonStockinfavorofadoptionoftheBrooklynUnion/LILCOAgreementandoftheLIPAAgreement.See"SelectedInformationConcerningLILCO-PotentialConflictsofInterestofCertainPersonsintheCombinationandtheLIPATransaction."VotingandRevocationofProxies.HoldersoftheLILCOCommonStockmayvoteeitherinpersonoryproperlyexecutedproxy,BachholderofLILCOCommonStockwillbefurnishedaproxycarduponwhichthenamesofthreeofLILCO'sDirectors,GeorgeBugliarello,JohnH.TalmageandBasilA.Paterson,constitutingtheproxycommittee(the"ProxyCommittee"),appear.Bycompletingandreturningtheformofproxy,theLILCOshareholderauthorizesthepersonsnamedthereintovotealltheLILCOshareholder'ssharesonhisorherbehalf.IssuedandoutstandingsharesofLILCOCommonStock,theholdersofwhichareentitledtovoteattheLILCOMeeting,whicharerepresentedbyproperlyexecutedproxies,will,unlesssuchproxieshavebeenrevoked,bevotedinaccordancewiththeinstructionsindicatedinsuchproxies.Ifaproxyissigneda'ndreturnedwithoutindicatinganyvotinginstructions,sharesofLILCOCommonStockrepresentedbytheproxywillbevotedFORadoptionoftheLIPAAgreement,FORadoptionoftheBrooklynUnion/LILCOAgreement,FORtheelectionof"thenominateddirectors,FORratificationoftheappointmentofErnst&YoungLLPasLILCO'sindependentauditorsfortheperiodfromJanuaryI,1997toMarch31,1998,FORtheapprovaloftheAnnualStockIncentiveCompensationPlan,FORtheapprovaloftheEmployeeStockPurchasePlan,andFORtheapprovalofanamendmenttotheLILCOCertificateofIncorporation.eIIWithrespecttotheelectionofthe'nominateddirectors,theProxyCommitteereservestherighttocumulatevotesrepresentedbyproxieswhichtheyreceiveandtodistributesuchvotesamongoneormoreofthenomineesattheirdiscretion.IfaLILCOshareholderwishestogiveaproxytosomeoneotherthantheProxyCommittee,suchshareholdermaycrossoutthenamesofthemembersoftheProxyCommitteeontheproxycardandinsertthenamesofuptothreeotherpersonsandmake,ifnecessary,otherappropriatechangesprovidinguuambiguousinstructionstothepersonorpersonsnamed.ALILCOshareholdermayrevokeaproxyatanytimepriortoitsexerciseattheLILCOMeetingbyeliveringtotheCorporationTrustCompany,P.O.Box631,Wilmington,Delaware19899anoticeofrevocation105 oradulyexecutedproxybearingalaterdateorbyattendingtheLILCOMeetingandvotinginperson.AttendanceattheLILCOMeetingwillnotinitselfconstituterevocationofaproxy.aTheLILCOMeetingmay'eadjournedto'anotherdateand/orplaceforanyproperpurpose(including,withoutlimitation,forthepurposeofsolicitingadditionalproxies).Intheirdiscretion,theProxyCommitteeisauthorizedtovoteuponsuchbusinessasmayproperlycomebeforetheLILCOMeeting,includingwithoutlimitation,anymotiontoadjourntheLILCOMeetingtoanothertimeorplace(includingfor'hepurposeofsolicitingadditionalproxies).ISolicilaiioiiofProxies.LILCOwillbearitsownexpensesinconnectionwiththesolicitationofproxiesfortheLILCOMeeting,exceptthateachofLILCOandBrooklynUnionwillpayone-halfofthecostsandexpensesincurredinconnectionwithprintingthisJointProxyStatement/Prospectusandone-halfofallfilingfees.Inadditiontosolicitingproxiesbymail,officers"andemployeesofLILCO,withoutreceiving'dditionalcompensationtherefor,maysolicitproxiesbytelephone,bytelecopy,bytelegramorinperson.LILCOhasretainedD.F.King&Co.,Inc.toaidinthesolicitationofproxiesfromtheLILCOshareholders.Thetotalfeefortheservicesofsuchfirmisnotexpectedtoexceed$30,000,plusreimbursementforreasonableout-of-pocketexpenses.rBusinessofLILCOLILCOwasincorpora'tedin1910undertheTransportationCorporationsLawoftheStateofNewYorkandsupplieselectricandgasserviceinNassauandSuffolkCountiesandtotheRockawayPeninsulainQueendCounty,allonLongIsland,NewYork.ThemailingaddressofLILCOis175EastOldCountryRoad,Hicksville,NewYork11801anditsgeneraltelephonenumberis(516)755-6650.Territory.LILCO'sserviceterritorycoversanareaofapproximately1,230squaremiles.Thepopulationoftheservicearea,accordingtoLILCO's1996estimate,is2.7millionpersons,includingapproximately98,00personswhoresideinQueensCountywithintheCityofNewYork.The1996populationestimatereflectsa0.7%increasesincethe1990census.Approximately80%ofallworkersresidinginNassauandSuffolkCountiesareemployedwithinthetwocounties.In1996,totalnon-agriculturalemploymentinNassauandSuffolkCountiesincreasedbyapproximately12,500positions,anemploymentincreaseof1.1%.\LILCOservesapproximatelyonemillionelectriccustomersofwhich921,000areresidential.LILCOreceivesapproximately49%ofitselectricrevenuesfrom,residentialcustomers,48%fromcommerciaVindustrialcustomersand3%fromsalestootherutilitiesandpublicauthorities.LILCOalsoservesapproximately460,000gascustomers,412,000ofwhichareresidential,accountingfor61%ofthegasrevenues,withthebalanceofthegas,revenuesmadeupbythecommerciaVindustrialcustomersandoff-systemsales.Lii~ployees.AsofMarch31,1997,LILCOhad5,443full-timeemployee's,ofwhich2,241belongtoLocal1049and1,292belongtoLocal1381oftheInternationalBrotherhoodofElectricalWorkers.EffectiveFebruary14,1996,LILCOandtheseunionsagreeduponcontractswhichwillexpireonFebruary13,2001.Thecontractsprovide,amongotherthings,forwageincreasestotaling15.5%overthetermoftheagreements.RegulationandAccountingConlroh.'ILCOissubjecttoregulationbythePSCwithrespecttorates,issuancesandsalesofsecurities,adequacyandcontinuanceofservice,safetyandsitingofcertainfacilities,accounting,conservationofenergy,managementeffectivenessandothermatters.Toensurethatitsaccountingcontrolsandproceduresareconsistentlymaintained,LILCOactivelymonitorsthesecontrolsandprocedures.TheAuditCommitteeofLILCO'sBoardofDirectors,aspartofitsresponsibilities,periodicallyreviewsthimonitoringprogram.106 tLILCOisalsosubject,incertainofitsactivities,tothejurisdictionof'theUnitedStatesDepartmentofEnergyandtheFERC.Inadditiontoitsaccountingjurisdiction,FERChasjurisdictionovertheratesLILCOmaychargeforthesaleofelectricenergyforresaleininterstatecommerce,includingtheratesLILCOchargesforelectricitysoldtomunicipalelectricsystemswithinLILCO'sterritory,andforthetransmission,throughLILCO'ssystem,ofelectricenergytootherutilities,andforthepricing,termsandconditionsoftransmissionanddistributionserviceswhenLILCOprovidestheseservicesseparatelyfromitstraditionalfull-requirementsretailelectricservice.FERCalsohassomejurisdictionoveraportionofLILCO'sgassuppliesandsubstantialjurisdictionovertransportationtoLILCOofitsgassupplies.OperationofNineMilePointNuclearPowerStationUnit2,anuclearfacilityinwhichLILCOhasan18%interest,issubjecttoregulationbytheNRC.AdditionalinformationconcerningLILCOanditssubsidiariesisincludedintheLILCOdocumentsfiledwithCommissionwhichareincorporatedbyreferenceherein.See''WhereYouCanFindMoreInformation."NameA.JamesBarnes.GeorgeBugliarelloRensoL.CaporaliWilliamJ.CatacosinosPeterO.Crisp.........JamesT.Flynn.VickiL.Fuller..............,.LeonardP.NovelloAnthonyNozzolilloKatherineD.Ortega...........BasilA.Paterson.RichardL.SchmalenseeGeorgeJ.Sideris.JohnH.Talmage.EdwardJ.Youngling.AllDirectorsandOfficersasagroup,including33persolls1,4731,4732,14414,7079735,5091273.1,1891,3011,8012,0251,0734,8511,5052,446thosenamedaboveatotalof56,683ThenumberofsharesincludeswholesharesheldunderLILCO'sInvestorCommonStockPlanandforMr.Talmageincludes287sharesheldorbeneficiallyownedbyaspouse,parentorchildforwhichbeneficialownershipisdisclaimed.Inaddition,thenumberofsharesshownforeachDirector,otherthanDr.CatacosinosandMr.Flynn,includes973LILCOCommonStockunits,whichdonotconferanyvotingrights,creditedpursuanttotheDirectorStockUnitRetainerPlan.SecurityOwnershipofCertainBeneficialOwnersandManagementCunenfOwnershipofLILCOCommon,Stock.Thefollowingtableshowsthenumberofshares*ofLILCOCommonStockbeneficiallyowned,asofJune23,1997,byeachDirector,certainOfficersandbyallDirectorsandOfficersasagroup.Thepercentageofsharesheldbyanyoneperson,orallDirectorsandOfficersasagroup,doesnotexceed1%ofalloutstandingsharesofLILCOCommonStock.TheaddressofeachoftheDirectorsandOfficersis:c/oLongIslandLightingHoldingCompany,175EastOldCountryRoad,Hicksville,NewYork11801.&NumberofShares*107 ThefollowingtablesetsforthcertaininformationwithrespecttothesharesofLILCOPreferredStockandLILCOCommonStockowned,byeachpersonknownbyLILCOtobethebeneficialownerofmorethan5%ofsuchLILCOPreferredStockatidLILCOCommonStock,asofMarch31,l997.TitleofClassNamesandAddressesCommonStockCommonStockTheBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn',NY11201-3550CapitalGroupCompaniesInc.333SouthHopeStreetLosAngeles,CA90071hw*RepresentsthenumberofsharesthatmaybepurchasedpursuanttotheLILCOattachedasAnnexBanddescribedinthisJointProxyStatement/Prospectus.Agreements."PercentageOwnedofChew23,981,964o16.6%12,141,50010.1%hStockOptionAgreementSee"TheStockOptionLILCOhasnotbeenadvised,norisitaware;ofanyadditional'sharesto'whichanyonehastherighttoacquirebeneficialownership."1,~LILCOisrequiredtoidentifyanyDirector,Officer,orpersonwhoow'nsmorethantenpercentofaclassofequitysecuritieswhofailedtotimelyfilewiththeSECarequiredreportrelatingtoownershipandchangesinownershipofLILCO'sequitysecurities.BasedoninformationprovidedtoLILCObysuchpersons,allLILCOOfficersandX)irectorsmadeallrequiredfilingsduringthefiscalyearendedDecember31,1996.Exceptasdescribedabove,LILCOdoesnotknowofanypersonbeneficiallyowningmorethan10%ofaclassofequitysecurities.CAUTIONARYSTATEMENTCONCERNINGFORWARD-LOOKINGSTATEMENTSBrooklynUnionandLILCOhavemadeforward-lookingstatementsinthisdocumentandinthedocumentsincorporatedbyreferenceinthisdocumentthataresubjecttorisksanduncertainties.Forward-lookingstatementsincludetheinformationconcerningpossibleorassumedfutureresultsofoperationsofthecompaniesandtheHoldingeCompanysetforthunder"TheBrooklynUnion/LILCOCombination-CommonReasonsfortheCombination,""-OpinionofBrooklynUnion'sFinancialAdvisor"and"SelectedInformationConcerningLILCO-OpinionsofLILCO'sFinancialAdvisor"andthoseprecededby,followedbyorthatincludethewords"believes,""expects,""anticipates"orsimilarexpressions.Forthosestatements,BrooklynUnionandLILCOclaimtheprotectionofthesafeharborforforward-lookingstatementscontainedinthePrivateSecuritiesLitigationReformActof1995.ShareholdersofBrooklynUnionandshareholdersofLILCOshould'understandthatthefollowingimportantfactors,inadditiontothosediscussedelsewhereinthisdocumentandinthedocumentswhichareincorporatedbyreferenceherein,couldaffectthefutureresultsoftheHoldingCompany,BrooklynUnionandLILCO,andcouldcausethoseresultstodiffer'aterially"fromthoseexpressedinsuchforward-lookingstatements:materiallyadversechangesineconomicconditionsinthemarketsservedbyBrooklynUnionorLILCOandinthe,marketsthatwillbeservedbythem;asignificantdelayintheexpectedclosingoftheComtiinationand/orLIPATransaction,orthefailureofeithertransactioittoclose;futureregulatoryactionsandconditionsj'nBrooklynUnion'sandLILCO'soperatingareas;andthetimingandextentofchangesincommoditypricesforcrudeoil,naturalgas,electricityandinterestrates.108 LEGALMATTERS'Ce'rtainlegalmattersrelatingtoLILCOinconnectionwiththeCombinationandtheLIPATransaction,including,amongotherthings",certainlegalmatterswithrespecttothevalidityofthesecuritiestobeissued,willbe'passedupon.forLILCObyKramer,Levin,Naftalis&Frankel,NewYork,NewYorkandbyHunton&Williams,Washington,D.C.fF,CertainlegalmattersrelatingtoBrooklynUnion,inconnectionwiththeCombinationwillbepassedupottforBrooklynUnionbyWachtell,Lipton,Rosen&Katz,NewYork,NewYork.EXPERTSlThefinancialstatementsofLILCO,appearinginitsAnnualReport(Form10-K/A)fortheyear=endedDecember31,1996andtheconsolidatedfinancialstatements,ofBrooklynUnionappearinginitsAnnualReport(Form10-K)fortheyearendedSeptember30,1996,bothincorporatedbyreferenceinthisJointProxyStatement/ProspectusofLILCOand,BrooklynUnion,whicharereferredtoandmadepartofthisRegistration,Statement,havebeenauditedbyErnst&Young.LLPandArthurAndersenLLP,respectively,assetforthintheirreportsthereonincludedthereinandincorporatedhereinbyreference.Suchfinancialstatementsareincorporatedhereinbyreferencejnrelianceuponsuchreportsgivenupontheauthorityofsuchfirmsasexpertsinaccountingandauditing,yFUTURESHAREHOLDERPROPOSALSAssumingthetimingoftheconsummationofthetransactionscontemplatedintheBrooklyn'Union/LILCOAgreementrequireLILCOtoholdanannualmeetingin1998,proposalsofshareholdersintendedtobepresentedtsuchmeetingmustbereceivedbyLILCOatitsofficesat175EastOldCountryRoad,Hicksville,NewYork1801,Attention:CorporateSecretary,notlaterthanNovember24,1997.ProposalsmustcomplywiththeSEC'sproxyregulationsrelatingtoshareholderproposalsinordertobeconsideredforinclusioninLILCO'sproxymaterials.Assuming,thetimingoftheconsummationofthetransactionscontemplatedintheBrooklynUnion/LILCOAgreement,orthekeySpanExchangeAgreementrequireBrooklynUnionorKeySpantoholdanannualmeetingiri1998,proposalsofshareholdersjntendedtobepresentedatsuchmeetingmustbereceivedby,BrooklynUnionatitsofficesatOneMetroTechCenter,Brooklyn,NewYork11201-3850,Attention:Secretary,notlater,thanSeptember1,1997.ProposalsmustcomplywiththeSEC'sproxyregulationsrelatingtoshareholderproposalsinordertobeconsideredforinclusioninBrooklynUnion'sorKeySpan'sproxymaterials.MattersintendedtobepresentedbyholdersofBrooklynUnionorKeySpanCommonStockatthe1998annualmeetingmustbestatedinwritinganddeliveredtotheappropriateSecretarybysuchshareholdersduringtheperiodbetween90and60dayspriortothedateofthemeeting,whichisexpectedtobeheldonFebruary5,1998.109 WHEREYOUCANFINDMOREINFORMATIONLILCOandBrooklynUnionfileannual,quarterlyandspecialreports,proxystatementsandotherinformationwiththe.SEC.FollowingtheCombination,theHoldingCompanywillalsomakethesefilingswiththeSEC.Youmayreadandcopyanyreports,statementsorotherinformationthatthecompaniesfileattheSEC'spublicreferenceroomsatRoom1024,JudiciaryPlaza,450FifthStreet,N.W.,Washington,D.C.20549,andattheSEC'sRegionalOfficeslocatedat7WorldTradeCenter,Suite1300,NewYork,NewYork10048andatCiticorpCenter,500WestMadisonStreet,Suite1400,Chicago,Illinois60661-2511.PleasecalltheSECat1-800-SEC-0330forfurtherinformationonthepublicreferencerooms.OurSECfilingsshouldalsobeavailabletothepublicfromcommercialdocumentretrievalservicesandattheInternetwebsitemaintainedbytheSECathttp://www.sec.gov.Inaddition,materialandinformationconcerningBrooklynUnionandLILCOcanbeinspectedattheNewYorkStockExchange,Inc.,'20BroadStreet,7thFloor,NewYork,NewYork10005,onwhichexchangetheBrooklynUnionCommonStock,theLILCOCommonStock,theLILCOPreferredStock,certainoftheLILCOGeneralandRefundingBondsandtheLILCODebenturesarelisted,andmaterialandinformationconcerningLILCOcanalsobeinspectedatthePacificStockExchange,Inc.,301PineStreet,SanFrancisco,'California94104,onwhichexchangetheLILCOCommonStockislisted.TheHoldingCompanyhasfiledaregistrationstatementonFormS-4toregisterwiththeSECthesharesofHoldingCompanyCommonStockandHoldingCompanyPreferredStocktobeissuedinconnectionwiththeBrooklynUnion/LILCOAgreementandtheLIPAAgreement.KeySpanhasalsofiledregistrationstatementsonFormS-4toregisterwiththeSECthesharesofKeySpanCommonStocktobeissuedinconnectionwiththeKeySpanholdingcompanyrestructuringandshareexchanges.ThisJointProxyStatement/Prospectusispartofeachsuchregistrationstatement,aswellasbeingaproxystatementfortheannualmeetingofLILCOandthespecialmeetingofBrooklynUnion.InaccordancewithSECrules,eachsuchregistrationstatementmaycontainadditionalinformationthatyouwillnotfindintheJointProxyStatement/Prospectus.Theregistrationstatementsareavailableforinspectionandcopyingassetforthabove.TheSECallowsusto"incorporatebyreference"informationintothisJointProxyStatement/Prospectus,whichmeansthatwecandiscloseimportantinformationtoyoubyreferringyoutoanotherdocumentfiledseparatelywiththeSEC.TheinformationincorporatedbyreferenceisdeemedtobepartofthisJointProxyStatement/Prospectus,exceptfor'anyinformationsupersededbyinformationcontaineddirectlyinthisJointProxyStatement/Prospectus.ThisJointProxyStatement/Prospectusincorporatesbyreferencethe'documentssetforthbelowthatwerepreviouslyfiledwiththeSECbyLILCO(FileNo.1-3571)orBrooklynUnion(FileNo.1-722).Thesedocumentscontainimportantinformationaboutourcompaniesandtheirfinancialcondition.1.LILCO'sAnnualReportonForm10-K/AfortheyearendedDecember31,1996.2.LILCO'sTransitionReportonForm10-Qforthe3monthperiodendedMarch31,19973.LILCO'sCurrentReportsonForm8-KdatedFebruary25,1997,March19,1997,asamended,andApril11,1997.4.BrooklynUnion'sAnnualReportonForm10-K/AfortheyearendedSeptember30,1996.5.BrooklynUnion'sQuarterlyReportsonForm10-QforthequartersendedDecember31,1996andMarch31,1997.6.BrooklynUnion'sCurrentReportsonForm8-KdatedDecember30,1996,February24,1997andMarch19,1997.7.TheinformationcontainedinBrooklynUnion'sProxyStatementdatedDecember30,1996foriAnnualMeetingofShareholdersheldonFebruary6,1997.110 tWemayberequiredbytheSECtofileotherdocumentspursuanttoSection13(a),13(c),14or15(d)oftheSecuritiesExchangeActof1934,asamended,betweenthetimethisJointProxyStatement/ProspectusissentandthedatetheLILCOMeetingandtheBrooklynUnionMeetingareheld.ThesedocumentswillbedeemedtobeincorporatedbyreferenceinthisJointProxyStatement/ProspectusandtobeapartofitfromthedatetheyarefiledwiththeSEC.Ifyouareashareholder,wemayhavesentyousomeofthedocumentsincorporatedbyreference,butyoucanobtainanyofthemthroughus,theSECortheSEC'sInternetwebsiteasdescribedabove.Documentsincorporatedbyreferenceareavailablefromuswithoutcharge,excludingallexhibitsunlesswehavespecificallyincorporatedbyreferenceanexhibitinthisJointProxyStatement/Prospectus.ShareholdersmayobtaindocumentsincorporatedbyreferenceinthisJointProxyStatement/Prospectusbyrequestingtheminwritingorbytelephonefromtheappropriatecompanyatthefollowingaddresses:KathleenA.Marion,VicePresidentandCorporateSecretaryLongIslandLightingCompany175EastOldCountryRoadHicksville,NewYork11801(516)5454914RobertR.Wieczorek.VicePresident,SecretaryandTreasurerTheBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn,NewYork11201-3850(718)403-3388Ifyouwouldliketorequestdocumentsfromus;pleasedosopromptlyinordertoreceivethembeforetheShareholderMeetings.YOUSHOULDRELYONLYONTHEINFORMATIONCONTAINEDORINCORPORATEDBYREFERENCEINTHISJOINTPROXYSTATEMENT/PROSPECTUSTOVOTEONTHEBROOKLYNUNIONAGREEMENT,THELIPAAGREEMENTORTHEKEYSPANHOLDINGCOMPANYPROPOSAL.WEHAVENOTAUTHORIZEDANYONETOPROVIDEYOUWITHINFORMATIONTHATISDIFFERENTFROMWHAT'SCONTAINEDINTHISJOINTPROXYSTATEMENT/PROSPECTUS.THISJOINTPROXYSTATEMENT/PROSPECTUSISDATEDJUNE27,1997.YOUSHOULDNOTASSUMETHATTHEINFORMATIONCONTAINEDINTHISJOINTPROXYSTATEMENT/PROSPECTUSISACCURATEASOFANYDATEOTHERTHANTHATDATE,ANDNEITHERTHEMAILINGOFTHISJOINTPROXYSTATEMENT/PROSPECTUSTO'SHAREHOLDERSNORTHEISSUANCEOFBLHOLDINGCORP.COMMONSTOCKIN'THECOMBINATIONORKEYSPANCOMMONSTOCKINTHEKEYSPANSHAREEXCHANGESHALLCREATEANYIMPLICATIONTOTHECONTRARY.111' a~'ISTOFDEFINEDTERMS-~Definedi''i~'.PageDefined'*i".".iii~"uPage'mendedStockOptionAgreements.'...".AntitrustDivisionAtomicEnergyActBasicAgreements..'.:......'..."..'....BearStearns.'"BrooklynUnion."''iooklynUnionBy-'Laws....'...;.i.'."BrooklynUnionCertificate...'...BrooklynUnionCommonStock........17IncentivePlan.~'"'."-:.'-'101'4,HoldingCompanyAct...,..:......;...,.,".4748HoldingCompanyBy-Laws.....'i'...'...;~~'".6349HoldingCompanyCertificate............63"84'oldingCompan'yCommonStock....':.:>'>>1721.HoldingCompanyPreferredStock...;t..'631'HoldingCompanySeries-AAPreferred'5"Stock........'..:".........i........>.'."'I"18'65"'HSRAct'-~'"i"'~"'''"4896112BrooklynUnionComparables..........29Issuer.80BrooklynUnionDissentingShares'......"''67JointProxyStatement/Prospectus..'.'..'...17BrooklynUniori/LILCOAgreement.'...."'""'17KeySpan-""~"''19BrooklynUnionMeeting.......'..".....'"*1'/KeySpanAgreement''"'....".19BrooklynUnionPlans.......'....~.'.'.."'72'eySpanCommonStock..."..".'......:19BrooklynUnionRatio..."....'..'.."...'"2,18KeySpanShare'Exchange.....'..'.".....'.."18BrooklynUnionStockOption'-*.KramerLevin.''.'"20Agre'enient'''.'"23LargeNuclearGroup.''""'97'usine'sSCombination-..'....".'..'......."'6'ILCO'......:!"='=';''=.."'"I"BusinessCombinationProposal........73LILCOasadjusted.~'-""~'llCancelledShares..81LILCOBy-Laws.65Cash*PurchasePrice.:.:..;.........,,;",8$LILCOCertificate",.'....;,,i,:,'.",....,~65lCertificate..i..:,:.~........,.i...;.,.....,68LILCOCommonStock'.:....,.>>:,;,;...'.<<,>>,""17ClosingDate....,.~i.i.q>>.......,;-....',.72,"LILCOComparables:......:.~."-........."iQ9<Code..:......,;t...."...,.,'..-i.:....;,33'",.LILCODissentingShares..i.,~i....;.":...',",,67~Combination,.......;....r...,...",';17,LILCO,Meeting.:'...~..r..';:-:,,....,i."17~ConcentratedNuclearGroup.;.';......,:"~,",,"97,'LILCOPlans...r...>>,';",>>'.i.'...'".".;z,72'onsideratiqn.....:....",,.>~.".....;,-...-,,".,18,'.LILCOPreferredStock;...-...",':.,;.'.;:,<<;17ContingentIssliance.,'..:,.:.i.....i.....-..=,67,,".,LILCO,StockOption,AgreeIilent<,"....,,,<<,(>>23')DCF~.i.....i.'.".!'.~..~~~'i.i.i./.~':~~~~".',<<,30LIPA'~~i~...~~~i>>~~~~~"j~~a'is"ii'gl18~DillonRead,.~;-,",>>,:20~~LIPAAct.....'...:..;"..'..;,.;...',,i('<i"20'"DesignatedNumber.....'....."..;.;...:.','.68,,;LIPAAgreement~.':,,~,:...:.;,,;,....i.,.':,",,18,DissentingPreferredShares............82,J.IPAClosing......,:.....'.,.".",'."..z.",....,i;>81DissentingShares18LIPAEffectiveTime"-''"'"'-"81"'BIT93LIPARatio18EBITDA.92LIPASub.18,81EffectiveTime.100LIPATransaction.18ElectricMergerTransactions...........29LIPATransmissionandDistributionERISA69System.54ExchangeAgent68Make-WholeAmount82ExchangedShares.68Market/OfferPrice80FairMarketRate83Merger17FERC......48MerrillLynch...........20FPA.48MerrillLynchOpinion.................27FTC.48Non-nuclearGroup..97GasMergerTransactions..............29Non-redeemablePreferredStock.........82HedgeArrangements.....~...........73NoticeDate80HistoricalPeriod30NRC49HistoricalTradingRatios..............28NuclearAssetsHoldingCompany.2,11,17 DefinedTeraiNYBCL.OptionHolder.OptionShares.OptionsOriginalAgreement.OriginalRatio.PACBPAL...'erformancePlan.PreferredStockDesignation........'....PrivatePlacementPreferredStock.....';.ProjectProjectedPeriodPromissoryNotesProxyCommitteePSCRatio.RecordDateRegulatoryAssetsRepresentatives.RepurchasePeriodRestrictedShares.........RetainedAssets.RetainedDebtAmount....PageNumber4179797923182149876481493083105201817967379'808183DefinedTernlRetainerPlan.RetirementPlan.............SecuritiesAct.SECSeriesAAPreferredStock.....SeriesCCPreferredStock.....SeriesGGPreferredStock.....SeriesQQPreferredStock.....SeriesUUPreferredStock.....SeverancePlan........SeverancePeriod.ShareholderMeetings.........ShareholderNoticeProcedure..Shoreham...................StockOptionAgreements.....StockPlanSubjectPartySurvivingCorporation........T&DBusiness.TransferredAssets.~.........TransfereeSubsidiaries.......TransferTaxes'.'."..l.'........TriggerEvent.........VotingPower.PageNumber1011014141171717171788881765202310078819618,54,8135377865113
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AMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEANDMERGERbetweenTHEBROOKLYNUNIONGA.SCOMPANYANDLONGISLANDLIGHTINGCOMPANYDATEDASOFJUNE26,1997 1[THISPAGEINTENTIONALLYLEFTBLANK]'}4~IrRg SEcnoN1.1SECTION1.2SEcnoN2.1SECTION2.2SECTION2.3TABLEOFCONTENTSARTICLEITHETRANSACTIONSTHEBINDINGSHAREEXCHANGEANDMERGEREFFECTIVETIME..............................,..ARTICLEIITREATMENTOFSHARESEFFECTONCAPITALSTOCKDISSENTINGSHARES.ISSUANCEOFNEWCERTIFICATES.aARTICLEIIITHECLOSINGPageA-2A-2A-2A4SECTION3.1CLOSINGARTICLEIVREPRESENTATIONSANDWARRANTIESOFBROOKLYNUNIONA-6SECTION4.1SEcrIoN4.2SEcnoN4.3ECnoN4.4SECTION4.5SEcrIQN4.6SECTION4.7SEcnoN4.8SEcrIoN4.9SECTION4.10SEcrIoN4.11SECTION4.12SEcrIoN4.13SECTION4.14SECTION4.15SECTION4.16SECTION4.17SECTION4.18SECTION4.19SEcrIoN5.1SECTION5.2SECTION5.3ECTION5.4IORGANIZATIONANDQUALIFICATION.SUBSIDIARIES..i.........,.CAPITALIZATION,.AUTHORITY;NON-CONTRAVENTION;STATUTORYAPPROVAL'S;COMPLIANCEREPORTSANDFINANCIALSTATEMENTS....'....ABSENCEOFCERTAINCHANGESOREVENTSLITIGATION.REGISTRATIONSTATEMENTANDPROXYSTATEMENTTAXMATTERS......................EMPLOYEEMATTERS;ERISAENVIRONMENTALPROTECTION.REGULATIONASAUTILITY.................VOTEREQUIREDACCOUNTINGMATTERS.APPLICABILITYOFCERTAINPROVISIONSOFLAW...OPINIONOFFINANCIALADVISORINSURANCE.OWNERSHIPOFLILCOCOMMONSTOCK..'.'.......~..BUSINESSSYNERGIESARTICLEVREPRESENTATIONSANDWARRANTIESOFLILCOORGANIZATIONANDQUALIFICATIONSUBSIDIARIES.........:....~....~.CAPITALIZATION.AUTHORITY;NOI+CONTRAVENTION;STATUTORYAPPROVALS;COMPLIANCE'-6A-6A-7'-7A-8A-9A-9A-9A-9A-11A-12A-14A-14A-14A-14A-14A-14A-15A-15A-15A-15A-15A-16 SEcrIQN5.5SECTION5.6SEcrloN5.7SECTION5.8SEcrIoN5.9SEcrIoN5.10SEc1'IQN5.11SEcrIQN5.12SEcrroN5.13SECTION5.14SECTION5.15SECTION5.16SEcrIoN5.17SECTION5.18SECTION5.19SECTION6.1SEcnoN7.1SEcrIoN7.2SECTION7.3SECI'ION7.4SECTION7.5SEcrroN7.6SEcrIoN7.7SEcnoN7.8SEcrIoN7.9SEcrIQN7.10SEcnoN7.11SECTION7.12SECTION7.13SEcnoN7.14SECTION7.15SEcrIoN7.16SEcnoN7.17SEcrIoN7.18SEcrIoN7.19SEcrIoN7.20SEcrIoN8.1SECTION8.2SEcnoN8.3REPORTSANDFINANCIALSTATEMENTSABSENCEOFCERTAINCHANGESOREVENTSLITIGATIONREGISTRATIONSTATEMENTAND'PROXYSTATEMENT..TAXMATTERSEMPLOYEEMATTERS;ERISAENVIRONMENTALPROTECTION.REGULATIONASAUTILITYVOTEREQUIREDACCOUNTINGMATI'ERS=APPLICABILITYOFCERTAINPROVISIONSOFLAW.OPINIONOFFINANCIALADVISORINSURANCE.OWNERSHIPOFBROOKLYNUNIONCOMMONSTOCKBUSINESSSYNERGIES..........,.ARTICLEVICONDUCTOFBUSINESSPENDINGTHEEFFECTIVETIMECOVENANTSOFTHEPARTIESARTICLEVIIADDITIONAI.AGREEMENTSACCESSTOINFORMATIONJOINTPROXYSTATEMENTANDREGISTRATIONSTATEMENT.........~..REGULATORYMATTERSSHAREHOLDERAPPROVAL.~........DIRECTORS'NDOFFICERS'NDEMNIFICATION.DISCLOSURESCHEDULESPUBLICANNOUNCEMENTSRULE145AFFILIATESEMPLOYEEAGREEMENTSEMPLOYEEBENEFITPLANSSTOCKPLANSNOSOLICITATIONSCOMPANYBOARDOFDIRECTORSSENIOR,EXECUTIVESEXPENSESFURTHERASSURANCESPOST-EXCHANGEOPERATIONS.....OTHERTRANSACTIONSEMPLOYMENTAGREEMENT..........,.......lHOLDINGCOMPANY.ARTICLEVIIICONDITIONSCONDITIONSTOEACHPARTY'SOBLIGATIONTOEFFECTTHETRANSACTIONS...............CONDITIONSTOOBLIGATIONOFLILCOTOEFFECTTHETRANSACTIONSCONDITIONSTOOBLIGATIONOFBROOKLYNUNIONTOEFFECTTHETRANSACTIONSA-170A-17A-17A-17A-18A-19A-20A-21A-21A-21A-21A-21A-21A-22A-22A-22A-26A-27A-27A-29A-30A-30A-30A-31A-32A-32A-32A-33A-33A-33A-33A-34A-34A-34A-35 ARTICLEIXTERMINATION,AMENDMENTANDWAIVERSECTION9.1TERMINATION.SECTIQN9.2EFFECTOFTERMINATION.SEGTIQN9.3TERMINATIONFEE;EXPENSES..SECTION9.4AMENDMENTSECTION9.5WAIVERPageA-37A-38A-39A-40A-40ARTICLEXGENERALPROVISIONSSEGTIQN10.1NON-SURVIVAL;EFFECTOFREPRESENTATIONSANDWARRANTIESSECTION10.2BROKERS..SECTION10.3NOTICESSECTION10.4MISCELLANEOUSSECTIQN10.5INTERPRETATION.SEGTIQN10.6COUNTERPARTS;EFFECT....SECTION10.7PARTIESININTEREST;ASSIGNMENTSECTION10.8WAIVEROFJURYTRIALANDCERTAINDAMAGESSECTIQN10.9ENFORCEMENT...........~.nExHIEITAFormofAmendedandRestatedLILCOStockOptionAgreementA-40A-40A-41A-41A-41AQIA-42A-42A-42ExHIIIITBFormofAmendedandRestatedBrooklynUnionStockOption'AgreementxHrnrrC'ormofAgreementandPlanofExchangeandMergerbyandamongBLHoldingCorp.,LILCO,LIPAandLIPAAcquisitionCorp.
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~~.lAMENDED,ANDRESTATED.AGREEMENTANDPLANOFEXCHANGEANDMERGER,dafedasof.June<6,.1997(this".AGREEMENT"),betweenTHEBROOKL'YNUNIONGASCOMPANY,~aNewYorkcorporation("BrooklynUnion")andLONGISLANDLIGHTINGCOMPANY,aNewYorkcorporation("LILCO").4WHEREASBrooklynUnionand.IILCO,havedeterminedtyengageinabusinesscombinationas,peerfirmsinamergerandabindingshareexchangeandtoformaholdingcompanytomanagetheircombinedbusinesses(the"COMPANY");WHEREAS,BrooklynUnion,LILCOandNVECOCORP.,aNewYorkcompany("NYECO"),enteredintoanAgreementandPlanofExchange,datedas;of.Decemberi29,1996(the"ORIGINALAGREEMENT");,WHEREAS,BrooklynUnion,LILCO,andBUGLILCQ,HOLDINGCORP.,aNew,Yorkcorporation(.",3+GLILCO>');.amended,andrestated,theOriginalAgreementpursuanttoanAmendedandRestatedAgreementandPlan,ofExchange<dated,asofFebruary,6,1997(the"FIRSTAMENDEDAND,RESTATED,AQPEEME5T",);.IIWHEREAS,withthec'onsentofea'ch'ofBrooklynUnionandLILCO,'NYECO'assigne'dallofitsnghtsand'bligatiorisurideitheOrigin'al'A'greementto4UGLIL'CO(the'ASSIGNMENT'');"4=aWHEREAS,'nfurtherance'ofa'businesscombinati'onbyandbetween'BrooklynVnion>andLILCO,theresp'ectiveBoards'fDire'ctorsofBrooklynUnion'and'LILCOhaveadop'tedthisAgreementandthetransactionscontemplatedhereby"on'the'terms"andConditionss'etforth'inthisAg'reement;44I,,WHEREAS,.theBoard,of,Directorsof,.LILCO..h~liIiproyedandLILCOgasexecutedanamendedandrestatedagreementwithBrooklyn.Unioninthy;,form;ofEXHIBITA(the,."LILCOSTOCKOPTIONAGREEMENT,")contemplating.astock-option(the"LILCOSTOCKOPTION")andtheBoard,ofDirectorsofBrooklynUnionhasapprovedandBrooklynUnionhasexecutedanlimendedandrestatedagreement,withLILCO,the,formof.EXHIBITB(the"BROOKLYNUNIONSTOCK,OPTIONAGREEMENT")cpntemplatingaockoption(the".-BROOKLYNUNION,STOCKOPTION',');WHEREAS,BrooklynUnion,LILCOandLONGISLANDPOWERAUTHORITY("LIPA")e'nter'edinfoanAgreementinPrinciple,.datedasofMarch19,1997,pursuantto.whichLILCOandLIPAconteinplateenteringintpan'AgreementaridPlan',ofExchangeandMerger'substantiallyin'heforniattaclied,asExhibitChereto(the"L'IPQ'AGREEMENT".)t'WHEREAS,forfederal'income'taxpurpo'ses,itis"inleridedthat'(i)the'partieshereto'w'illrecognizenog'ainorloss,'(ii)unlesdtheL'IPAAg're'ementhas'eenterminated,thestockholdersofLILCOwho"participateinthe'ransactions''ill'recognize(excepttotheextentSection1633"oftheCode'(ashereinafterdefined)is'vailableandavaileddfbya'stockholder)gainorlossbothinrespec'tofstockreceivetl'andinrespectofanycash'"theyreceive"inlieuo'f"fractional'shares,aiid'(iii).theshareholdersofBrooklynUnionwhop'articipateintheTran'sactionswilln'ot'recognize''ain'orloss,'in-'ea'chcase,forfederalincometaxpurposesasaresultoftheconsummationoftheTransactions(ashereinafterdefined)WHEREAS,theBoardofDirectorsofBrooklynUnionhasapprovedandBrooklynUnionhasexecutedanamendedandrestatedagreementandplanofexchange,datedasofJune26,1997(the"KEYSPANEXCHANGEAGREEMENT"),withKeySpanEnergyCorporation,"aNewYorkcorporationandawhollyownedsubsidiaryofBrooklynUnion("KEYSPAN"),pursuanttowhich,subjecttotheadoptionbytheshareholdersofBrooklynUnionoftheKeySpanExchangeAgreementandcertainotherconditions,includingtheredemptionbyBrooklynUnionofallofitsissuedand,outstandingpreferredstock,KeySpanwillacquireallthe,outstandingsharesofCommonStockofBrooklynUnioninabinding'hareexchangeunderSection913oftheNewYorkBusinessCorporationLaw(the"NYBCL"),inwhicheachshareofCommonStockofBrooklynUnionwillbeexchanged.oneshare.ofCommonStockofKeySpan,withtheresulrthatBrooklyn~Unionwillbecome'a'%hollyowned5idiaryofKeySpan(suchtransaction,the"KEYSPANRESTRUCTURING't)and WHEREAS,thepaitiesdesiretoamendandrestatetheFirstAmendedandRestatedAgreementasofthdatehereoftorefiecttheAssignment,theLIPAAgreementandtheKeySpanRestructuringandcertainothertechnicalchanges;NOWTHEREFORE,inconsiderationofthepremisesandtherepresentations,warranties,covenantsandagreementscontainedherein,thepartieshereto,intendingtobelegaleboundhereby,agreeasfollows:ARTICLEITHETRANsAcrioNsSEcrION1.1THEBINDINGSHAREEXCHANGEANDMERGER.ThisAgreementshallbesubmittedtotheholdersoftheCommonStock,parvalue$5pershare,ofLILCO(the"LILCOCOMMONSTOCK")andtheholdersoftheCommonStock,parvalue$0.33Mpershare,ofBrooklynUnion(the"BROOKLYNUNIONCOMMONSTOCK")foradoptioninaccordancewithSection913oftheNYBCL.Theaffirmativevoteofthe'oldersofatleasttwo-thirdsoftheissuedandoutstandingLILCOCommonStockandoftheholdersofatleasttwo-thirdsoftheissuedandoutstandingBrooklynUnionCommonStockshallbenecessarytoadoptthisAgreement.UponthetermsandsubjecttotheconditionsofthisAgreement,attheLILCOEffectiveTime(asdefinedinSECTION,1.2),theoutstandingsharesofLILCOCommonStockshallbeexchangedfornewlyissuedsharesoftheCommonStock,parvalue$0.01pershare,oftheCompany(the"COMPANYCOMMONSTOCK"and,withrespecttoanyperiodaftertheEffectiveTime,the."COMPANYCOMMONSTOCK",)asprovidedinSECTION2.1(the"SHAREEXCHANGE"),inaccordancewithSection913oftheNYBCLandattheBrooklynUnionEffectiveTime(asdefinedinSECTION1.2),awhollyownedsubsidiaryoftheCompany("MERGERSUB)willbemergedwithandintoBrooklynUnion(the"MERGER")inaccordancewithSection902oftheNYBCL,pursuanttowhicheachoutstandingshareofBrooklynUnionCommonStockshallautomaticallybeconvertedintooneshareofCompanyCommonStockasprovidedinSECTION2.1(the"MERGER"and,togetherwiththeShareExchange,the"TRANSACTIONS").AsaresultoftheMergerMergerSubwillceasetoexistandBrooklynUnionwillsurvivetheMergerasthesurvivingcorporation(the"SURVIVINGCORPORATION").SEcrioN1.2EFFECTIVETIME.OntheClosingDate(asdefinedin'SECTION3.1),acertificateofexchangecomplyingwiththerequirementsoftheNYBCLshallbeexecutedbyLILCOandtheCompanyandacertificateofmergercomplyingwiththerequirementsoftheNYBCLshallbeexecutedbyBrooklynUnionandMergerSub,and,eachshallbefiledbythepartieswiththeSecretaryofStateoftheStateofNewYork.TheLILCOBindingShareExchangeshallbecomeeffectiveatthetimespecifiedinthecertificateofexchangewithrespecttotheLILCOBindingShareExchange(the"LILCOEFFECTIVETIME")andtheMergershallbecomeeffectiveatthetimespecifiedinthecertificateofmergerfiledwithrespecttotheMerger(the"BROOKLYNUNIONEFFECTIVETIME")whichspecifiedtimesshallbecontemporaneous(the"EFFECTIVETIME");PROVIDED,thattheBrooklynUnionEffectiveTimeshallbelaterthantheLILCOEffectiveTimeandallreferencestotheEffectiveTimehereinshallmeantheBrooklynUnionEffectiveTime.ARTICLEIITREATMENTOFSHARESSEcTION2.1EFFECTONCAPITALSTOCK.(a)AttheBrooklynUnionEffectiveTime,byvirtueoftheMergerandwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnion,theCompanyorMergerSub:(i)TREATMENTOFBROOKLYNUNIONCOMMONSTOCK.EachshareofBrooklynUnio'ommonStockissuedandoutstandingimmediatelypriortotheBrooklynUnionEffectiveTiine,otherthA-2 DissentingShares(asdefinedinSECTION2.2),shallbeconvertedintotheright"toreceiveonefullypaidand,subjecttoSection630oftheNYBCL,nonassessableshareofCompanyCommonStock.AttheBrooklynUnionEffectiveTime,allsuchsharesofBrooklynUnionCommonStockshallnolongerbeoutstanding,andshallautomaticallybecancelledandretiredandceasetoexist,andeachholderofacertificaterepresentinganysuchsharesshallceasetohaveanyrightswithrespectthereto,'excepttherighttoreceivethe'sharesofCompanyCommonStocktobeissuedinconsiderationthereforuponthesurrenderofsuchcertificateinaccordancewithSECTION2.3,withinterest.(ii)TREATMENTOFMERGERSUBCOMMONSTOCK.EachshareofcommonstockofMergerSub,parvalue$.01pershare,issuedandoutstandingimmediatelypriortotheBrooklynUnionEffectiveTimeshallbeconvertedintooneshareofcommonstock,$0.335pershare,oftheSurvivingCorporation.(b)SubjecttoSECTION7.18(b),attheLILCOEffectiveTime,byvirtueoftheShareExchangeandwithoutanyactiononthepartofanyholderofanycapitalstockofLILCO,BrooklynUnionortheCompany:(i)TREATMENTOFLILCOCOMMONSTOCK.EachissuedandoutstandingshareofLILCOCommonStock,otherthanDissentingShares,shallbeexchangedfor0.803,(the"PRIGINALRATIO")fullypaidand,subjecttoSection630oftheNYBCL,nonassessablesharesofCompanyCommonStock;PROVIDEDthatiftheLIPAAgreementhasnotbeenterminatedbutthetransactionscontemplatedtherebywillnotbeconsummatedcontemporaneouslywiththeconsummationofthetransactionscontemplatedhereby,theneachissuedandoutstandingshareofLILCOCommonStock,otherthanDissentingShares,,shallbeexchangedfor0.803fullypaidand,subjecttoSection630oftheNYBCL,nonassessablesharesofCompanyCommonStock,andtheCompanyshallcausetheretobereservedoutofitsauthorizedbutunissuedsharesofCompanyCommonStocksuchnumberofsharesasisequalto0.077multipliedbythenumberofsharesofLILCOCommonStockoutstanding,otherthanDissentingShares,attheLILCOEffectiveTime;andifthetransactionscontemplatedbytheLIPAAgreementareconsummatedwithintwoyearsoftheLILCOEffectiveTime,thenthereshallbeissuedtopersonswhowereholdersofrecordofLILCOCommonStockattheLILCOEffectiveTime,0.077sharesofCompanyCommonStockinrespectofeachshareofLILCOCommonStock,otherthanDissentingShares,thathadbeenheldbythemofrecordattheLILCOEffectiveTime.ThepotentialissuanceofsharesofCompanyCommonStockpursuanttothelastprovisooftheprecedingsentenceisreferredtohereinasthe"ContingentIssuance".Thetermsofexchangedescribedintheprovisointhesentenceprecedingtheprecedingsentencearereferredtohereinasthe"LIPARATIO"(0.880),andtheOriginalRatioandtheLIPARatioarereferredtohereintogetherasthe"RATIOS".Uponsuchexchange,theCompanyshallbecometheownerofeachshareofLILCOCommonStocktobesoexchangedandallsuchsharesofLILCOCommonStockshallbedeemedtohavebeenexchangedfortheapplicablenumberofsharesoftheCompanyCommonStock,andeachholderofacertificateformerlyrepresentinganysuchsharesshallceasetohaveanyrightswithrespectthereto,excepttherighttoreceivesharesoftheCompanyCommonStocktobeissuedinconsiderationthereforuponthesurrenderofsuchcertificateinaccordancewithSECTION2.3.(ii)NOCHANGEINLILCOPREFERREDSTOCK.EachissuedandoutstandingshareofthepreferredstockofLILCOshallbeunchangedasaresultoftheShareExchangeandshallremainoutstandingthereafter.IISi:.crioN2.2DISSENTINGSHARES.SharesofLILCOCommonStockorBrooklynUnionCommonStockheldbyanyholderentitledtoreliefasadissentingshareholderunderSection910oftheNYBCL(the"DISSENTINGSHARES")shallnotbecometherighttoreceiveCompanyCommonStock,b'utshallbecancelledandconvertedintosuchconsiderationasmaybeduewithrespecttosuchsharespursuanttotheapplicableprovisionsoftheNYBCL,unlessanduntiltheright'ofsuchholdertoreceivefaircashvalueforsuchDissentingSharesterminatesinaccordancewithSection623oftheNYBCL.IfsuchrightisterminatedotherwiseanbythepurchaseofsuchsharesbyLILCOorBrooklynUnion,thensuchsharesshallceasetobeDissentingaresandshallrepresenttherighttoreceiveCompanyCommonStock,asprovidedinSECTION2.1.A-3 SEGTIQN2.3ISSUANCEOFNEWCERTIFICATES.It(a)DEPOSITWITHEXCHANGEAGENT.AssoonaspracticableaftertheEffectiveTime,theCompanyshalldepositwithsuchbankortrustcompanymutuallyagreeabletoLILCOandBrooklynUnion(the"EXCHANGEAGENT"),certificatesrepresentingsharesofCompanyCommonStockrequiredtoeffecttheissuancesreferredtoinSECTION2.1(or,SECTIONS2.1(a)and7.18(b)iftheTransactionsaretobeconsummatedpursuanttoSECTION7.18(b)).t(b)ISSUANCEPROCEDURES.AssoonaspracticableaftertheEffectiveTime,theExchangeAgentshallmailtoeachholderofrecordofacertificateorcertificates(the"CERTIFICATES")whichimmediatelyprior,totheLILCOEffectiveTimerepresentedoutstandingsharesofLILCOCommonStockorwhichimmediatelypriortotheBrooklynUnionEffectiveTimerepresentedoutstandingsharesofBrooklynUnionCommonStock(the"EXCHANGEDCOMMONSHARES")thatinthecaseofLILCOCommonStockwereexchangedforsharesofCompanyCommonStock(the"COMPANYSHARES")pursuanttoSECTION2.1(b)andinthecaseofBrooklynUnionCommonStockwereconvertedintotherightto-receive,CompanySharespursuanttoSECTION2.1(a),(i)aletteroftransmittal(whichshallspecifythatdeliveryshallbeeffected,andriskoflossandtitletotheCertificatesshallpass,onlyuponactualdeliveryoftheCertificatestotheExchangeAgent)(the"LETI'EROFTRANSMITTAL")and(ii)instructionsforuseineffectingthesurrenderoftheCertificatesinexchangeforcertificatesrepresentingCompanyShares.Notwithstandingtheforegoing,iftheTransactionsaretobeconsummafedpursuanttoSECTION7.18(b),thenassoon*aspracticableaftertheEffectiveTime,theExchangeAgentshallmailtoeachhblderofrecordof(x)aCertificatewhichimmediatelypriortotheLILCOEffectiveTimerepresentedExchangedCommonSharesthatwereexchangedforCompanySharespursuanttoSECTION7.18(b),or(y)aCertificatewhichimmediately'priortotheBrooklynUnionEffectiveTimerepresentedExchangedCommonSharesthatwereconvertedintheMergerintotherightto'eceiveCompanySharespursuanttoSECTION2.1(a),(i)aLetterofTransmittaland(ii)instructionsforuseineffectingthesurrenderoftheCertificatesinexchangeforcertificatesrepresentingCompany'Shares.UponsurrenderofaCertificatetotheExchangeAgentforexchange(ortosuchotheragentoragentsasmaybeappointedbya'greementofBrooklynUnionandLILCO),togetherwithadulyexecutedletteroftransmittalandsuchothedocilm'entsastheExchangeAgentshallrequire,theholderofsuchCertificafeshallbeentitledtoreceiveacertificaterepresentingthatnumberofwholeCompanyShareswhichsuchholderhastherighttoreceivepursuanttotheprovisionsofthisARTICLEII(orSECTIONS2.1(a)and7.18(b)iftheTransactionsaretobecolisummatedpursuanttoSECI'ION7.18(b)).IntheeventofatransferofownershipofExchangedCommonShareswhichisnotregisferedinthetransferrecordsofLILCOorBrooklynUnion,as'thecasemaybe,acertificaterepresentingthepropernumberofCompanySharesmaybeissuedtoatransfereeiftheCertificaterepresentingsuchExchangedCommonSharesispresentedtotheExchangeAgent,accompaniedbyalldocumentsrequiredtoevidenceandeffectsuchtransferandbyevidencesatisfactorytotheExchangeAgentthatanyapplicablestocktransfertaxeshavebeenpaid.UntilsurrenderedascontemplatedbythisSECTION2.3,eachCertificateshallbedeemedatanytimeaftertheLILCOEffectiveTimeortheBrooklynUnionEffectiveTime,'sthecasemaybe,torepresentonlytherighttoreceiveuponsuchsurrenderthecertificaterepresentingCompanySharesandcashinlieuofanyfractionalsharesofCompanyCommonStockascontemplafedbythisSECTION2.3.(c)DISTRIBUTIONSWITHRESPECTTOUNSURRENDEREDSHARES.NodividendsorotherdistributionsdeclaredormadeaftertheEffectiveTimewithrespecttoCompanyShareswitharecorddateaftertheEffectiveTimeshallbepaidtotheholderofanyunsurrenderedCertificatewithrespecttotheCompanyShamsrepresentedtherebyandnocashpaymentinlieuoffractionalsharesshallbepaidtoanysuchholderpursuanttoSECTION2.3(d)uritiltheholderofrecordofsuchCertificate"shallsurrendersuchCertificate.Subjecttotheeffectofunclaimedproperty,escheatandotherapplicablelaws,followingsurrenderofanysuchCertificate,thereshallbepaidtotherecordholderofthecertificatesrepresentingwholeCompanySharesissuedinconsiderationtherefor,withoutinterest,(i)atthetimeofsuchsurrender,theamountofanycashpayableinlieuofafractionalshareofCompanyCommonStocktowhichsuchholderisentitledpursuanttoSECTION2.3(d)andtheamountofdividendsorotherdistributionswitharecorddateaftertheEffectiveTimetheretoforpaidwithrespecttosuchwholeCompanySharesand(ii)attheappropriatepaymentdate,theamountA-4 edividendsorotherdistributionswitharecorddateaftertheEffectiyeTimebutpriortosurrenderandapaymentdatesubsequent.tosurrenderpayablewith,respecttosuchwholeCompany.Shares.,(d)NOFRACTIONALSECURITIES.,'otwithstandingany'"other'rovisionof'this'greement,nocertificatesorscriprepresentingfractionalsharesofCompanyCo'm'monStockshallbe'issueduponthesurrenderforexchangeofCertificatesandsuchfractional"sharesshall'otentitlethe"owner'thereoftovoteorto'anyotherrightsofaholderofCompanyCommonStock.AspromptlyaspossiblefollowingtheEffectiveTime,theExchangeAgentshalldeterminetheexcessof(i)thenumberoffullsharesofCompanyCommonStockdeliveredtotheExchangeAgentbytheCompanypursuant-toSECTION2.3(a)lessthenumberoffullsharesofCompanyCommonStocktobedistributedtotheholdersofBrooklynUnionCommonStockpursuanttoSECTION2.1(a)over(ii)thenumberoffullsharesofCompanyCommonStocktobedistributedtotheholdersofLILCOCommonStockpursuanttoSECTION2;l(c)orSECTION7.18(b)('suchexcessbeinghereinreferredtoasthe"EXCESSSHARES").AssoonaftertheEffectiveDateaspracticable,the"ExchangeAgent,'sagentfor'theholdersofLILCOCommon'Stock,shallsellth'eExcessSharesat"thethen':prevailingpricesontheNewYorkStockExchange(the"NYSE")throughoneormo'ememberfirms'of'the'NYSEiriroundlotstotheextentpracticable.LILCOshallpay,orcauseto'bepaid,allcommis'sions,transfer'thxesandotherout-of-pockettransactionscosts,includingtheexpensesandcompensationoftheExchangeAgentincurredinconnectionwithsuchsaleoftheExcessShares.UntiltheproceedsofsuchsaleorsaleshavebeendistributedtotheholdersofLILCOCommonStock,theExchangeAgentshallhol'dsuchproceedsintrustfortheholdersofLILCOCommonStock.TheExchangeAgent,shalldeterminetheportionoftheproceedsfromthesaleoftheExcessShares(the"EXCESSSHARESPROCEEDS")towhicheachholderofLILCOCommonStockisentitled,ifany,bymultiplyingtheamountoftheExcessSharesProceedsbya>fraction,thenumerator'ofwhichisiheamountofthefractionalshareintereststowhichsuchholderofLILCOCommonStockisentitled,andthedenominatorofwhichistheaggregateamountoffractional'share-interesttowhichalfofthe"holders'ofLIL'COCommonStockareentitled.Assoonaspracticableafte'rth'e'saleoftheExcessShares'andthedeterminationoftheamou'ntofcash,ifany,tobepaid'to"eachholderofLILCOCommonSfo'ckinlieu'of'any'raction'alshare'interests,"theExchangeAgentshall"dist'ributesuchamountstotheholdeNofLILCO'Common'tockentitledtheretoandwhoavetheretoforedeliveredCertificatesfor-LILCOCo'mnionStockpursuantto'thisA'RTICLEII.CashisbeingpaidinlieuoffractionalsharespursuanttO'thisSECTION2.1(d)for'theconvenienceoftheparties'and'isnotaseparatelybargainedforconsideration.(e)CLOSINGOFTRANSFERBOOKS.FromandaftertheLILCOEffectiveTime,andtheBrooklynUnionEffectiveTime,thecommon,stock,transferbooksofLILCOandBrooklynUnion,respectively,shallbeclosedandnotransferofany,LILCOCommpnStockorBrooklyn,.UnionCommonStockshallthereafter,bemade.If,aftertheLILCOEffectiveTimeortheBrooklynUnionEffectiveTime,asthecasemay.beCertificatesarepresentedtotheCompany.,theyshallbecancelledand,exchangedforcertificates,representingthe,appropriatenumberofCompanyShares,asthecasemaybe,asprovidedinthisSECTION2.3.,(f)TERMINATIONOFEXCHANGEAGENT.AnycertificatesrepresentingCompanySharesdepositedwiththeExchangeAgentpursuantto'SECTION2.3(a)andnotexchangedwithinorieyearafter'theEffectiveTimepursuanttothisSECTION2.3shallbereturned'bytheExchangeAgenttotheCompan),which'shallthereafteractasExchangeAgent.Allfundsh'eldbythe'Exchange''Agent,for''paymenttotheholdersofunsurrenderedCer'tificatesandunclaimedattlie'endofonePear'fromth'eEffective'Timeshallbereturnedto'theCompany,afterwhichtimeanyholderofunsurrenderedCertificatesshalllook"asageneraIcreditoronlytotheCompanyfoipaymentof'suchfundstowhichsuchholdermaybedue,subjecttoapplicablelaw.TheCompanyshallnotbeliabletoanyperson'forsuchsharesorfundsdelivered'toapublic'officialpursuanttoanyapplicableabandonedpropertyescheatorsimilarlaw.(g)PROCEDURESAPPLICABLE;TO<<.SHARESISSUED'PURSUANT.TO,THE"CONTINGENTISSUANCE.IfthetransactionscontemplatedbytheLJPA,AgreeutientareconsummatedwithintwoyearsoftheLILCOEffectiveTime,thentheExchange,Agentshall.mailtoeachholder.ofrecordofCertificateswhichimmediatelyprior,fotheLILCOEffectiveTimerepresentedoutstandingsharesofLILCOCommonStockthatereexchangedforCompany,Sharesincompliancewiththeissuanceproceduresdescribed:inSECTION2.3(b)rtificatesforthenumberof,wholeCompanyShareswhichsuchholderhas,the.righttoreceivepursuanttotheA-5 ContingentIssuance.NodividendsorotherdistributionsdeclaredormadeaftertheLILCOEffectiveTimewithrespecttoCompanyShareswitharecorddateaftertheLILCOEffectiveTimeandpriortotheconsummationofthetransactionscontemplatedbytheLIPAAgreementshallbepaidinrespectofsharestobeissuedpursuanttotheContingentIssuance.TheproceduresdescribedinSECTION2.3(d)withrespecttofractionalsharesshallbeemployedwithrespecttosharestobeissuedpursuanttotheContingentIssuance.ARTICLEIIITHECLosINGSECTIoN3.1CLOSING,TheclosingoftheTransactions(the"CLOSING")shalltakeplaceattheofficesofKramer,Levin,Naftalis&Frankel,919~irdAvenue,NewYork,NewYorkat10:00A.M.,localtime,onthesecondbusinessdayimmediatelyfollowingthedateonwhichthelastoftheconditionssetforthinARTICLEVIIIhereofissatisfiedor'waived,oratsuchothertime,anddateandplaceasBrooklynUnionandLILCOshallmutuallyagree,butin,noeventearlierthanApril1,1998(the"CLOSINGDATE").ARTICLEIVREPRESENTATIONSANDWARRANTIESOFBROOKLYNUNIONBrooklynUnionrepresentsandwarrantstoLILCOasfollows:SECTIGN4.1ORGANIZATIONANDQUALIFICATION.ExceptassetforthinSection4.1oftheBrooklynUnionDisclosureSchedule(asdefinedinSECTION7.6(ii)),eachofBrooklynUnionandeachoftheBrooklynUnionSubsidiaries(asdefinedbelow)isacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionofincorporationororganization,hasallrequisitecorporatepowerandauthority,andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetandpropertiestotheextentowned,leasedandoperated,andtocarryonitsbusinessasitisnowbeingconducteandisdulyqualifiedandingoodstandingtodobusinessineachjurisdictioninwhichthenatureofitsbusinessortheownershiporleasingofitsassetsandpropertiesmakessuchqualificationnecessary.AsusedinthisAgreement,(a)theterm"SUBSIDIARY"ofapersonshallmeananycorporationorotherentity(includingpartnerships,limitedliabilitycompaniesandotherbusinessassociations)ofwhichatleast'majorityoftheoutstandingcapitalstockoroth'ervotingsecuritieshavingvotingpowerunderordinarycircumstancestoelectdirectorsorsimilarmembersofthegoverningbodyofsuchcorporationorentityshallatthetimebeheld,directlyorindirectly,bysuchpe'rsonand(b)theterm"BROOKLYNUNIONSUBSIDIARY"shallmeanaSubsidiaryofBrooklynUnion.SEcfioN4.2SUBSIDIARIES.Section4.2oftheBrooklynUnionDisclosureSchedulesetsforthadescription,asofDecember29,1996,ofallSubsidiariesandJointVentures(asdefinedherein)ofBrooklynUnion,including(a)thenameofeachsuchentityandBrooklynUnion'sinterestthereinand(b)abriefdescriptionoftheprincipal'lineorlinesofbusinessconductedbyeachsuchentity.ExceptassetforthinSection4.2oftheBrooklynUnionDisclosureSchedule,noneoftheBrooklynUnionSubsidiariesisa"publicutilitycompany",a"holdingcompany",a"subsidiarycompany"oran"affiliate"ofanypublicutilitycompanywithinthemeaningofSection2(a)(5),2(a)(7),2(a)(8)or2(a)(11)ofthePublicUtilityHoldingCompanyActof1935,asamended(the"1935ACT"),respectively.ExceptassetforthinSection4.2oftheBrooklynUnionDisclosureSchedule,alloftheissuedandoutstandingsharesofcapitalstockofeachBrooklynUnionSubsidiaryarevalidlyissued,fullypaid,nonassessableandfreeof'preemptiverights,andareowned,directlyorindirectly,byBrooklynUnionfreeandclearofanyliens,claims,encumbrances,securityinterests,equities,chargesandoptionsofanynaturewhatsoeverandtherearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatianysuchBrooklynUnionSubsidiarytoissue,deliverorsell,orcausetobeissued,deliveredorsold,addition,A-6
'haresofitscapitalstockorobligatingittogrant,extendorenterintoany.suchagreementorcommitment'.AsusedinthisAgreement,(a)theterm"JOINTVENTURE"ofapersonshallmeanany,corporationorotherentity(includingpartnershipsandotherbusinessassociations)thatisnotaSubsidiaryofsuch'person,inwhichsuchpersonoroneormoreofitsSubsidiariesownsanequityinterestand(b)theterm"BROOKLYNUNIONJOINTVENTURE"shallmeanthoseofthejointventuresofBrooklynUnionoranyBrooklynUnionSubsidiaryidentifiedasaBrooklynUnionJointVentureinSection4.2oftheBrooklynUnionDisclosureSchedule.'EGTIQN4.3CAPITALIZATION.TheauthorizedcapitalstockofBrooklynUnionisassetforthinBrooklynUnion'sAnnualReportonForm10KfortheyearendedSeptember30,1996.Asofthecloseofbusinesson,December18,1996,-therewereissuedandoutstanding49,993,378,sharesofBrooklynUnionCommonStock.AlloftheissuedandoutstandingsharesofthecapitalstockofBrooklynUnionare,andanysharesofBrooklynUnionCommonStockissuedpursuanttotheBrooklynUnionStockOptionAgreementwillbe,validlyissued,fullypaid,nonassessableandfreeofpreemptiverights.ExceptassetforthinSection4.3oftheBrooklynUnionDisclosureSchedule,asofDecember29,1996,therearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunderany'outstandingsecurity,instrumentorotheragreement,obligatingBrooklynUnionoranyoftheBrooklynUnionSubsidiariestoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofthecapitalstockofBrooklynUnion,orobligatingBrooklynUniontogrant,extendorenterintoanysuchagreementorcommitment,otherthanundertheBrooklynUnionStockOptionAgreement.TherearenooutstandingstockappreciationrightsofBrooklynUnionwhichwerenotgrantedintandem-witharelatedstockoptionandnooutstanding:limitedstockappreciationrightsorotherrightstoredeemforcashoptionsorwarrantsofBrooklynUnion.Bcertom4.4AUTHORITY;NON-CONTRAVENTION;STATUTORYAPPROVALS;COMPLIANCE.(a)AUTHORITY.BrooklynUnionhasallrequisitepowerandauthority'toenterintothisAgieem'entandtheBrooklynUnionStockOptionAgree'ment,and,'ubje'cttotheBrooklynUnionShareholders''pproval(asfinedinSECTION4.13)'ndtheBrooklynUnionRequiredStatutoryApprovals(asdefinedinSECTION.4(c)),toconsummatethetransactionscontemplatedherebyor'hereby.TheexecutionanddeliveryofthisAgreementandtheBrooklynUnionStockOptionAgreementandtheconsummationbyBrooklynUnionofthetransactionscontemplatedherebyandtherebyhavebeendulyauthorizedby'allnecessarycorporateactiononthepartofBrooklynUnion,subjecttoobtainingtheapplicableBrooklynUnionShareholders'pproval.EachofthisAgreementandtheBrooklynUnionStockOptionAgreementhasbeen'dulyandvalidlyexecutedanddeliveredbyBrooklynUnionand,assumingthedueauthorization,'xecution'anddeliveryhereofandthereofbytheothersignatoriesheretoandthereto,constitutesthevalidandbindingobligationofBrooklynUnionenforceableagainstitinaccordancewithitsterms.(b)NON-CONTRAVENTION.Exceptasset.forthinSection4.4(b)of:theBrooklynUnionDisclosureSchedule,theexecutionanddeliveryofthisAgreementandtheBrooklynUnionStockOptionAgreemehtbyBrooklynUniondonot,andthe.consummationofthetransactionscontemplatedhereby,ortherebywillnot,inanymaterialrespect,violate,conAictwith,orresultinamaterial"breachofanyprovisionof,orconstituteamaterial"default(withorwithoutnoticeorlapseoftimeorboth)under,orresultintheterminationormodificationof,oracceleratetheperformancerequiredby,orresultinarightoftermination,cancellation,oraccelerationofanyobligationorthelossofamaterialbenefitunder,orresultinthecreationofanymateriallien,securityinterest,chargeorencumbranceuponanyofthepropertiesorassetsofBrooklynUnionoranyoftheBrooklynUnionSubsidiariesorBrooklynUnionJointVentures(anysuchviolation,,conflict,breach,default,rightoftermination,modification,cancellationoracceleration,lossorcreation,a"VIOLATION"withrespecttoBrooklynUnion,suchtermwhenusedinARTICLEVhavingacorrelativemeaningwithrespecttoLILCO)pursuanttoanyprovisionsof(i)thecertificateofincorporation,by-lawsorsimilargoverningdocumentsofBrooklynUnionoranyoftheBrooklynUnionSubsidiariesortheBrooklyn'UnionJointVentures,(ii)subjecttoobtainingtheBrooklynUnionRequiredStatutoryApprovalsandthe'receiptoftheBrooklynUnionShareholders'rovalanystatute,law,ordinance;rule,regulation,judgment,decree,order,injunction,writ,permitorlicenseanyGovernmentalAuthority(asdefinedinSECTION4.4(c))applicabletoBrooklynUnionoranyoftheA-7 BrooklynUnion,SubsidiariesortheBrooklynUnionJointVenturesoranyoftheirrespectivepropertiesorassetor(iii)subjecttoobtainingthethird-party,consentssetforthinSection4.4(b)oftheBrooklynUnionDisclosureSchedule(the"BROOKLYNUNIONREQUIREDCONSENTS"),anymaterialnote,bond,mortgage,indenture,'deedoftrust,license,franchise,permit,concession,contract,leaseorotherinstrument,obligationoragreementofanykindto.whichBrooklynUnionoranyoftheBrooklynUnionSubsidiariesortheBrooklynUnionJointVenturesisapartyorbywhichitoranyofitspropertiesorassetsmaybeboundoraffected.(c)STATUTORYAPPROVALS.&#xb9;declaration,filingorregistrationwith,ornoticetoorauthorization,consentorapprovalof,anycourt,"federal,'state,localorforeigngovernmentalorregulatorybody(includingastockexchangeorotherself-regulatorybody)or"'atithority(each,a"GOVERNMENTALAUTHORITY")isnecessaryfortheexecutionanddeliveryofthisAgreementortheBrooklynUnionStockOptionAgreementbyBrooklynUnionortheconsummationbyBrooklynUnionofthetransactionsconteinplatedherebyorthereby,exceptasdescribedinSection4.4(c)oftheBrooklynUnionDisclosureSchedule(the"BROOKLYNUNIONREQUIREDSTATUTORYAPPROVAL.S",itbeingunderstoodthatreferencesinthisAgreementto"obtaining"suchBrooklynUnionRequiredStatutoryApprovalsshallmeanmakingsuchdeclarations,filingsorregistrations;givingsuchnotices,"obtainingsuchaiithorizations,consentsorapprovals;andhavingsuchwaitingperiodsexpireasarenecessarytoavoidaviolationoflaw).(d)COMPLIANCE.Except'asset'orthinSection4.4(d);Section4.10orSection4.11oftheBrooklynUnionDisclosureSchedule,orasdisclosedintheBrooklynUnionSECReports(asdefinedinSECTION4.5)filedpriortoDecember29,1996,"neitherBrboklynUnionno'ranyoftheBrooklynUnionSubsidiariesnor,totheknowledgeofBrooklynUnion,anyBrooklynUnionJointVenture'is"inmaterialviolationof,isunderinvestigationwithrespecttoanymaterialviolationof,orhas,beengivennoticeorbeenchargedwithanymaterialviolationof,'anylaw,statute,order,'rule,regulation,ordinanceorjudgment(including,withoutlimitation,anyapplicableenvironmentallaw,ordinanceorregulation)ofanyGovernmentalAuthority.ExceptassetforthinSection4.4(d)oftheBrooklynUnionDisclosureScheduleorinSection,4.11oftheBrooklyn.UnionDisclosureSchedule,BrooklynUnionandtheBrooklynUnionSubsidiariesandBrooklynUnionJointVentureshave.apermits,licenses,franchisesandothergovernmentalauthorizations,consentsandapprovalsnecessarytocondutheirbusinessesaspresentlyconductedinallmaterialrespects.ExceptassetforthinSection4.4(d)oftheBrooklynUnionDisclosureSchedule,brooklynUnionandeachoftheBrooklynUnionSubsidiariesisnotinmaterialbreachorviolationoforinmaterialdefaultintheperformanceorobservanceofanytermorprovisionof,andnoeventhasoccurredwhich,withlapseof,timeoractionbyathirdparty,couldresultinamaterialdefaultunder,(i)itscertificateofincorporationorby-lawsor(ii)anymaterialcontract,commitment,agreement,indenture,mortgage,loanagreement,note,lease,bond,license,approvalorotherinstrumenttow'hichitisapartyorbywhichitisboundortowhichanyofitspropertyissubject.SecrroN4.5REPORTSANDFINANCIALSTATEMENTS.ThefilingsrequiredtobemadebyBrooklynUnionandtheBrooklynUnionSubsidiariessinceJanuary1,1994undertheSecuritiesActof1933,asamended(the"SECURITIESACT"),theSecuritiesExchangeActof1934,asamended(the"EXCHANGEACT"),the1935Act,theFederalPowerAct(the"POWERACT"),theAtomicEnergyActandapplicablestatelawsandregulationshavebeenfiledwiththeSecuritiesandExchangeCommission(the"SEC"),theFederalEnergyRegulatoryCommission(the"FERC"),theNuclearRegulatoryCommission("NRC")ortheappropriatestatepublicutilitiescommission,asthecasemaybe,includingallforms,statements,reports,agreements(oralorwritten)andalldocuments,exhibits,amendmentsandsupplements.appertainingthereto,andcomplied,asoftheirrespectivedates,inallmaterialrespects,withallapplicablerequirementsoftheappropriatestatuteandtherulesandregulationsthereunder.Brooklyn,UnionhasmadeavailabletoLILCOatrueandcompletecopyofeachreport,schedule,registrationstatementanddefinitiveproxy,statementfiledbyBrooklynUnionwiththeSECsinceJanuary1,1994(assuchdocumentshavesincethetimeoftheirfilingbeenamended,the"BROOKLYNUNIONSECREPORTS").Asoftheirrespectivedates,theBrooklynUnionSECReportsdidnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactrequiredtobestatedthereinornecessarytomakethestatementstherein,inlightofthecircumstancesunderwhichtheyweremade,nmisleading.TheauditedconsolidatedfinancialstatementsandunauditedinterimfinancialstatementsofBrooklA-8 nionincludedintheBrooklynUnionSECReports(collectively,the"BROOKLYNUNIONFINANCIALSTATEMENTS")havebeenpreparedinaccordancewithgenerallyacceptedaccountingprinciplesappliedonaconsistentbasis("GAAP")(exceptasmaybeindicatedthereinorinthenotestheretoandexceptwithrespecttounauditedstatementsaspermittedby.Form10-QoftheSEC)andfairlypresentthefinancialpositionofBrooklynUnionasofthedatesthereofandtheresultsofitsoperationsandcashflowsfortheperiodsthenended,subject,inthecaseoftheunauditedinterimfinancialstatements,tonormal,recurringauditadjustments.True,accurateandcompletecopiesoftheRestatedCertificateofincorporationandBy-lawsofBrooklynUnion,asineffectonDecember29,1996,areincluded(orincorporatedbyreference)intheBrooklynUnionSECReports.Sorrow4.6ABSENCEOFCERTAINCHANGESOREVENTS.ExceptasdisclosedintheBrooklynUnionSECReportsfiledpriortoDecember29,1996orassetforthinSection4.6oftheBrooklynUnionDisclosureSchedule,sinceSeptember30,1996,BrooklynUnionandeachoftheBrooklynUnionSubsidiarieshaveconductedtheirbusinessonlyintheordinarycourseofbusinessconsistentwithpastpracticeandtherehasnotbeen,andnofactorconditionexistswhichwouldhaveor,insofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsofBrooklynUnionanditssubsidiariestakenasawhole(a"BROOKLYN'NIONMATERIALADVERSEEFFECT").SEcTIQN4.7LITIGATION.Exceptasdisclosedinthe'BrooklynUnionSECReportsfiledpriortoDecember29,1996orassetforthinSection4.7,Section4.9or'Section4.11oftheBrooklynUnionDisclosureSchedule,(i)therearenomaterialclaims,suits,actionsor;proceedings,pendingor,totheknowledgeofBrooklynUnion,threatened,norarethere,totheknowledgeofBrooklynUnion,anymaterialinvestigationsorreviewspendingorthreatenedagainst,relatingtooraffectingBrooklynUnionoranyoftheBrooklynUnionSubsidiaries,(ii)therehavenotbeenanysignificantdevelopmentssinceSeptember30,1996withrespecttosuchdisclosedclaims,suits,actionS,proceedings,investigationsorreviewsand(iii)therearenomaterialjudgments,decrees,injunctions,rulesorordersofanycourt,governmentaldepartment,commission,agency,instrumentalityauthorityoranyarbitratorapplicabletoBrooklynUnionoranyoftheBrooklynUnionSubsidiaries.SEcfIQN4.8REGISTRATIONSTATEMENTANDPROXYSTATEMENT.Noneoftheinformationsuppliedortobesuppliedby,oronbehalfofBrooklynUnionforinclusionorincorporationbyreferencein(i)the.registrationstatementonFormS-4tobefiledwiththeSECbytheCompanyinconnectionwiththeissuanceofsharesofCompanyCommonStockintheTransactions(the,"REGISTRATIONSTATEMENT")will,atthetimetheRegistrationStatementisfiledwiththeSECandatthetimeitbecomeseffectiveundertheSecuritiesAct,containanyuntruestatementofamaterialfactoromittostateanymaterialfactrequiredtobestatedthereinornecessarytomakethestatementsthereinnotmisleadingand(ii)thejointproxystatement,in'definitiveform,relatingtothemeetin'gsofBrooklynUnionand'LILCOshareholderstobeheldinconnectionwiththeTransactions(the"PROXYSTATEMENT")willnot,atthedatesmailedtoshareholdersand"atthetimesofthemeetings,ofshaieholderstobeheldinconnectionwiththeTransactions,containanyuntruestatementofamaterialfactoromittostateanymaterialfactrequiredtobestatedthereinornecessaryinordertomakethestatementqtherein,inlightofthecircumstancesunderwhichtheypremade,notmisleading.TheRegistrationStatementandtheProxyStatementwe'llcomplyastoforminallmaterialrespectswiththeprovisionsoftheSecuritiesActandtheExchangeActandtherulesandregulationsthereunder.VSEGTIQN4.9TAXMATTERS."TAXES",asusedinthisAgreement,meansanyfederal,state,'county,localorforeigntaxes,charges,fees,levies,orotherassessments,includingallnetincome,grossincome,salesanduse,advalorem,transfer,gains,profits,excise,franchise,realandpersonalproperty,grossreceipt,capitalstock,production,businessandoccupation,disability,employment,payroll,license',estimated,stamp,customduties,severance.orwithholdingtaxesorchargesimposedbyanygovernmentalentity,andincludesanyinterestandpenalties(civilorcriminal)onoradditionstoanysuchtaxes.'RETAXRETURN",asusedinthisAgreement,meansareport,returnorotherinformationrequiredtobesuppliedtoagovernmentalentitywithrespecttoTaxesluding,wherepermittedorrequired,combinedorconsolidatedreturnsforanygroupofentitiesthatincludesooklynUnionoranyofitssubsidiaries,orLILCOoranyofitssubsidiaries,asthecasemaybe.A-9 ExceptassetforthinSection4.9oftheBrooklynUnionDisclosureSchedule:(a)FILING"OFTIMELYTAXRETURNS.BrooklynUnionandeachoftheBrooklynUnionSubsidiarieshavefiled(ortherehasbeenfiledonitsbehalf)allmaterialTaxReturnsrequiredtobefiledbyeachofthemu'nderapplicablelaw.AllsuchTaxReturnswereandareinallmaterialrespectstrue,completeandcorrectandfiledonatimelybasis.(b)PAYMENTOFTAXES.BrooklynUnionandeachoftheBrooklynUnionSubsidiarieshave,withinthetimeandinthemannerprescribedbylaw,paidall,Taxesthatarecurrentlydueandpayableexceptforthosecontestedingoodfaithandforwhichadequatereserveshavebeentaken.(c)TAXRESERVES.BrooklynUnionandtheBrooklynUnionSubsidiarieshaveestablishedontheirbooksandrecordsreservesadequatetopayallTaxesandreservesfordeferredincometaxesinaccordancewithGAAP.(d)TAXLIENS.TherearenoTaxliensupontheassetsofBrooklynUnionoranyoftheBrooklynUnionSubsidiariesexceptliensforTaxesnotyetdue.(e)WITHHOLDINGTAXES.BrooklynUnionandeachoftheBrooklynUnionSubsidiarieshavecompliedinallmaterialrespectswiththeprovisionsoftheInternalRevenueCodeof1986,asamended(the"CODE")relatingtothewithholdingofTaxes,aswellassimilarprovisionsunderanyotherlaws,andhave,withinthetimeandinthemannerprescribedbylaw,withheldfromemployeewagesandpaidovertothepropergovernmentalauthoritiesallamountsrequired.(f)EXTENSIONSOFTIMEFORFILINGTAXRETURNS.NeitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasrequestedanyextensionoftimewithinwhichtofileanyTaxReturn,whichTaxReturnhasnotsincebeenfile.-(g)WAIVERSOFSTATUTEOFLIMITATIONS.NeitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasexecutedanyoutstandingwaiversorcomparableconsentsregardingtheapplicationofthestatuteoflimitationswithrespecttoanyTaxesorTaxReturns.(h)EXPIRATIONOFSTATUTEOFLIMITATIONS.Thestatuteoflimitationsfortheassessmei-ofallTaxeshasexpiredforallapplicableTaxReturnsofBrooklynUnionandeachoftheBrooklyn'UnionSubsidiariesorthoseTaxReturnshavebeenexaminedbytheappropriatetaxingauthoritiesforallperiodsthroughDecember29,1996,andnodeficiencyforanyTaxeshasbeenproposed,assertedorassessedagainstBrooklynUnionoranyoftheBrooklynUnionSubsidiariesthathasnotbeenresolvedandpaidinfull.(i),AUDIT,ADMINISTRATIVEANDCOURTPROCEEDINGS.NoauditsorotheradministrativeproceedingsorcourtproceedingsarepresentlypendingwithregardtoanyTaxesorTaxReturnsofBrooklynUnionoranyoftheBrooklynUnionSubsidiaries.(j)POWERSOFATTORNEY.NopowerofattorneycurrentlyinforcehasbeengrantedbyBrooklynUnionoranyoftheBrooklynUnionSubsidiariesconcerninganyTaxmatter.(k)TAXRULINGS.NeitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasreceivedaTaxRuling(asdefinedbelow)orenteredintoaClosingAgreement(asdefiriedbelow)withanytaxingauthoritythatwouldhaveacontinuingadverseeffectaftertheClosingDate."TAXRULING",asusedinthisAgreement,shallmeanawrittenrulingofataxingauthorityrelatingtoTaxes."CLOSINGAGREEMENT",asusedinthisAgreement,shallmeanawrittenandlegallybindingagreementwithataxingauthorityrelatingtoTaxes.(1)AVAILABILITYOFTAXRETURNS.BrooklynUnionhasmadeavailabletoLILCOcompleteandaccuratecopiesof(i)allTaxReturns,andanyamendmentsthereto,filedbyBrooklyn.UnionoranyoftheBrooklynUnionSubsidiaries,(ii)allauditreportsreceivedfromanytaxingauthorityrelatingtoanyTaxReturnfiledbyBrooklynUnionoranyoftheBrooklynUnionSubsidiariesand(iii)anyClosingAgreementsenteredintobyBrooklynUnionoranyoftheBrooklynUnionSubsidiarieswithanytaxi~authority.
(m)TAXSHARINGAGREEMENTS.NeitherBrooklynUnionnoranyBrooklynUnionSubsidiaryisapartytoanyagreementrelatingtoallocatingorsharingofincomeTaxes.(n)CODESECTION280G.'eitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiariesisapartytoanyagreement,contract,orarrangementthatcouldresult,onaccountofthetransactionscontemplatedhereunder,separatelyorintheaggregate,inthepaymentofany"excessparachutepayments"withinthemeaningofSection280GoftheCode.(o)LIABILITYFOROTHERS.NoneofBrooklynUnionoranyoftheBrooklynUnionSubsidiarieshasanyliabilityforTaxesofanypersonotherthanBrooklynUnionandtheBrooklynUnionSubsidiaries(i)underTreasuryRegulationsSection1.1502-6(oranysimilarprovisionofstate,localorforeignlaw)asatransfereeorsuccessor,(ii)bycontract,or(iii)otherwise.Sscnont4.10EMPLOYEEMA%TERS;ERISA.ExceptassetforthinSection4.10oftheBrooklynUnionDisclosureSchedule:(a)BENEFITPLANS.Section4,10(a)oftheBrooklynUnionDisclosureSchedulecontainsatrueandcompletelistofeachemployeebenefitplancoveringemployees,formeremployeesordirectorsofBrooklynUnionandeachoftheBrooklynUnionSubsidiariesortheirbeneficiaries,orprovidingbenefitstosuchpersonsinrespectofservicesprovidedtoanysuchentity,including,butnotlimitedto,anyemployeebenefitplanswithinthemeaningofSection3(3)ofthe,EmployeeRetirementIncomeSecurityActof1974,asamended("ERISA")andanyseveranceorchangeincontrolagreement(collectively,the"BROOKLYNUNIONBENEFITPLANS").ForthepurposesofthisSECTION4.10only,theterm"BrooklynUnion"shallbedeemedtoincludethepredecessorsofsuchcompany.(b)CONTRIBUTIONS.All'materialcontributionsand'therpaymentsrequiredtobemadebyBrooklynUnionoranyoftheBrooklynUnionSubsidiariestoanyBrooklynUnionBenefitPlan(ortoanypersonpursuanttothetermsthereof)havebeenmadeortheamountofsuchpaymentorcontributionobligationhasbeenrefiectedintheBrooklynUnionFinancialStatements.(c)QUALIFICATION;COMPLIANCE.EachoftheBrooklynUnionBenefitPlansintendedtobe"qualified"withinthemeaningofSection401(a)oftheCodehasbeendeterminedbytheIRStobesoqualified,and,tothebestknowledgeofBrooklynUnion,nocircumstancesexistthatarereasonablyexpected,byBrooklynUniontoresultintherevocationofanysuchdetermination.BrooklynUnionisincomplianceinallmaterialrespectswith,andeachoftheBrooklynUnionBenefitPlansisandhasbeenoperatedin.allmaterialrespectsincompliance'with,allapplicablelaws,rulesandregulationsgoverningsuchplan,including,withoutlimitation,ERISAandtheCode.EachBrooklynUnionBenefitPlanintendedtoprovideforthedeferralofincome,thereductionofsalaryorothercompensation,ortoaffordotherincometaxbenefits,complieswiththerequirementsoftheapplicableprovisionsoftheCodeorotherlaws,rulesandregulationsrequiredtoprovidesuchincometaxbenefits.(d)LIABILITIES.WithrespecttotheBrooklynUnionBenefitPlans,individuallyandintheaggiegate,noeventhasoccurred,and,tothebestknowledge'ofBrooklynUnion,theredoesnotnowexistanyconditionorsetofcircumstances,thatcouldsubjectBrooklynUnionoranyoftheBrooklynUnionSubsidiariestoanymaterialliabilityarisingundertheCode,ERISAoranyotherapplicablelaw(including,withoutlimitation,anyliabilitytoanysuchplanorthePensionBenefitGuarantyCorporation(the"PBGC")),orunderanyindemnityagreementtowhichBrooklynUnionisaparty,excludingliabilityforbenefitclaimsandfundingobligationspayableintheordinarycourse.(e)WELFAREPLANS.NoneoftheBrooklynUnionBenefitPlansthatare"welfareplans",withinthemeaningofSection3(1)ofERISA,providesforanyretireebenefits,otherthancontinuationcoveragerequiredtobeprovidedunderSection4980BoftheCodeorPart6ofTitleIofERISA.(f)DOCUMENTSMADEAVAILABLE.BrooklynUnionhasmadeavailabletoLILCOatrueandtcorrectcopyofeachcollectivebargaining.agreementtowhichBrooklynUnionoranyoftheBrooklynUnionSubsidiariesisapartyorunderwhichBrooklynUnionoranyoftheBrooklynUnionSubsidiaries Phasobligationsand,withrespectto'eachBrooklynUnionBenefitPlan;whereapplicable,(i)suchplanandsummaryplandescription,'-(ii)themostrecentannualreportfiledwiththeIRS,"(iii)eachrelatedtrustagreement,insurancecontractserviceprovideror,investmentmanagement,agreement,,(includingallamendmentstoeachsuchdocument)t(iv)the~ostrecentdeterminationofthe'IRSwithrespecttothequalifiedstatusofsuchBrooklynUnionBenefitPlan,,and(v)themostrecentactuarialreportorvaluation.{g)PAYMENTSRESULTINGFROMTHETRANSACTIONS.(i)Theconsummationorannouncementof,anytransactioncontemplatedbythisAgreementwillnot(eitheraloneorupontheoccurrenceof,anyadditionalorfurther,actsorevents),resultinany(A)payment(whetherofseverancepay~orotherwise)becomingduefrom]brooklynUnionor,anyofthebrooklynUnionSubsidiariestoanyofficer,employee,formeremployee'ordirectorthereoforto.thetrusteeunder,any,",,rabbitrust"orsimilararrangement,or(B)benefitunderanyBrooklynUnionBenefitPlanbeingestablishedorbecomingaccelerated,vestedorpayable=and(ii)neitherBrooklynUnion'noranyoftheBrooklynUnionSubsidiariesisapartyto(A)anymanagement,employment,deferredcompensation,severance(includinganypayment,rightorbenefitresultingfromachangeincontrol),bonusorothercontractforpersonalserviceswithanyofficer,directorbremployee,(B)'anyconsultingcontract'ithanyperson'whopiior'oenteringintosuch'contractwas'a'directoror'ffic'ei,ofBrooklyn'Union",or(C)anyplan,agreement,arrangementorunderstandingsimilartoany'oftheforegoin'g.J(h)LABORAGREEMENTS''Asof;December',1996,except.assetforthinSection4.10(h)oftheBrooklynUnionDisclosure,'Scheduleorin:theBrooklynUnionSECReportsfiledprior-toDecember"29,1996,neitherBrooklynUriion"noranyof.the"BrooklynUnionSubsidiariesisa'partyto'anycollectivebargainingagreementorotherlaboragreementwithanyunionorlabororganization.To'theb'estknowledgeofBrooklynUnion,asofDecember29,,199$,exceptassetforthinSection.4.10(h)oftheBrooklynUnionDisclosureSchedule,thereis'nocurrentunionrepresentationquestioninvolvingemployeesofBrooklyn,UnionoranyoftheBrooklynUnionSubsidiaries,nordoesBrooklynUnisonknowofanyactivityorg,Pj'lproceedingofanylabororganization(orrepresentativethereof)oremployeegrouptoorganizeanysuchemployees.ExceptasdisclosedintheBrooklynUnionSECReportsfiledpriortoDecember29,1996oriSection'4.10(h)oftheBrooklyn'UnionDisclosur'eSchedule,i.(i)thereisno'nfairlaborpractice,employmeritdiscriminationor.othermaterialcomplaintagainstBrooklynUnionor-'anyof.theBrooklynUnionSubsidiariespending,or'tothe,bestknowledgeofBrooklyn.Union,threatened,(ii)thereisnostrikeorlockoutormaterialdispute,slowdownorworkstoppagepending,ortothebestknowledgeofBrooklynUnion,threatened,againstorinvolvingBrooklynUnion,and(iii)thereisnoproceeding,claim,suit,action.orgovernmental.investigationpendingor,tothebestknowledgeofBrooklynUnion,threatened,inrespectofwhichany'director;officer;employeeoragentofBrooklyn"Union;oranyoftheBrooklynUnionSubsidiariesisormaybeentitled'toclaim'indemnifica'tionfromBrooklynUnionorsuchBrooklynUnionSubsidiarypu'rsuanttotheirrespective.certificatesofincorporationorby-lawsorasprovidedintheindemnificationagreementslistedinSection4.10(h)oftheBrooklynUnionDisclosureSchedule."~',,~q,>-gC,SecrtoN4.11ENVIRONMENTALPROTECTION.Exceptassetforthin,Section4.11oftheBrooklynUnionDisclosureScheduleorinthe-BrooklynUnion,SEC;Reportsfiled,priortoDecember,29,1996:I(a)COMPLIANCE.'rooklynUnionandeachoftheBrooklyn,UnionSubsidiariesisin,materialcomplian'cewithallapplicableEnvironmentalLaw's(asdefinedinSECTION4.11{g)(ii));and'neitherBrooklyn'Union'noranyoftheBrobklynUnionSubsidiarieshasreceivedany"communication'(writtenororal),fromanypersonorGovernmentalAuthoritytha'tallegesthatBrooklynUnionoranyoftheBrooklynUnionSubsidiariesisnotinquchcompliancewithapplicableEnvironmentalLaws.(b)ENVIRONMENTALPERMITS.BrooklynUnioq,andeachoftheBrooklyn,UnionSubsidiarieshasobtainedorhasappliedforallmaterialenvironmental,healthandsafetypermitsandgovernmentalauthorizations(collectively;the"ENVIRONMENTALPERMITS")necessary'forth'econstructionoftheirfacilitiesortheconductoftheiroperations,"andallsuchEnvironmentalPe'rmits'areingoodstanding-whereapplicable,arenewalapplicationhasbeentimelyfiledandispendingagencyapproval,and-Brookl UnionandtheBrooklynUnionSubsidiariesareinmaterialcompliancewithalltermsandconditionsofthe"'nvironmentalPermits.(c)ENVIRONMENTALCLAIMS.TothebestknowledgeofBrooklynUnion,thereisnomaterialEnvironmentalClaim(asdefinedinSECTION4.11(g)(i))pending(i)againstBrooklynUnionoranyoftheBrooklynUnionSubsidiariesorBrooklynUnionJointVentures,(ii)againstanypersonorentitywhoseliabilityforanyEnvironmentalClaimBrooklynUnionoranyoftheBrooklynUnionSubsidiarieshasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw,or(iii)againstanyreal'orpersonalpropertyoroperationswhichBrooklynUnionoranyoftheBrooklynUnionSubsidiariesowns,leasesormanages,inwholeorinpart.(d)RELEASES.BrooklynUnionhasnoknowledgeofanymaterialReleases(asdefinedinSECTION4.11(g)(iv))ofanyHazardousMaterial(asdefinedinSECTION4.11(g)(iii))thatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaimagainstBrooklynUnionoranyoftheBrooklynUnionSubsidiaries,oragainstanypersonorentitywhoseliabilityforanymaterialEnvironmentalClaimBrooklynUnionoranyoftheBrooklynUnionSubsidiarieshasormayhaveretainedor'assumedeithercontractuallyorbyoperationoflaw.(e)PREDECESSORS.BrooklynUnionhasnoknowledge,withrespecttoanypredecessorofBrooklynUnionoranyoftheBrooklynUnionSubsidiaries,ofanymaterialEnvironmentalClaimpendingorthreatened,orofanyReleaseofHazardousMaterialsthatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaim.(f)DISCLOSURE.ToBrooklynUnion'sbestknowledge,BrooklynUnionhasdisclosedtoLILCOallmaterialfactswhichBrooklynUnionreasonablybelievesformthebasisofamaterialEnvironmentalClaimarisingfrom(i)thecostofBrooklynUnionpollutioncontrolequipmentcurrentlyrequiredorknowntoberequiredinthefuture;(ii)current,BrooklynUnionremediationcostsorBrooklynUnionremediationcostsknowntoberequiredinthefuture;or(iii)anyotherenvironmentalmatteraffectingBrooklynUnion.(g)AsusedinthisAgreement:(i)"ENVIRONMENTALCLAIM"meansanyandalladministrative,regulatoryorjudicialactions,suits,demands,demandletters,directives,claims,liens,investigations,proceedingsornoticesofnoncomplianceorviolation(writtenororal)byanypersonorentity(includinganyGovernmentalAuthority)allegingpotentialliability(including,withoutlimitation,potentialresponsibilityfororliabilityforenforcement,investigatorycosts,cleanupcosts,governmentalresponsecosts,removalcosts,remedialcosts,naturalresourcesdamages,propertydamages,personalinjuriesorpenalties)arisingoutof,basedonorresultingfrom(A)thepresence,orReleaseorthreatenedReleaseintotheenvironment,ofanyHazardousMaterialsatanylocation,whetherornotowned,operated,leasedormanagedbyBrooklynUnionoranyoftheBrooklynUnionSubsidiariesorBrooklynUnionJointVentures(forpurposesofthisSECTION4.11),orbyLILCOoranyoftheLILCOSubsidiariesorLILCOJointVentures(forpurposesofSECTION5.11);or(B)circumstancesformingthebasisofanyviolation,orallegedviolation,ofanyEnvironmentalLaw;or(C)anyandallclaimsbyanythirdpartyseekingdamages,contribution,indemnification,costrecovery,compensationorinjunctivereliefresultingfromthepresenceorReleaseofanyHazardousMaterials.(ii)"ENVIRONMENTALLAWS"meansallfederal,state,locallaws,rulesandregulationsrelatingtopollution,theenvironment(including,withoutlimitation,ambientair,surfacewater,groundwater,landsurfaceorsubsurfacestrata)orprotectionofhumanhealthasitrelatestotheenvironmentincluding,withoutlimitation,lawsandregulationsrelatingtoReleasesorthreatenedReleasesofHazardousMaterials,orotherwiserelatingtothemanufacture,processing,distribution,use,treatment,storage,disposal,transportorhandlingofHazardousMaterials.1(iii)"HAZARDOUSMATERIALS"means(a)anypetroleumorpetroleumproducts,radioactivematerials,asbestosinanyformthatisorcouldbecomefriable,ureaformaldehydefoaminsulation,andtransformersorotherequipmentthatcontaindielectricfiuidcontainingpolychlorinated biphenyls("PCBs");and(b)anychemicals,materialsorsubstanceswhicharenowdefmedasoincludedinthedefinitionof"hazardoussubstances","hazardouswastes","hazardousmaterials","extremelyhazardouswastes","restrictedhazardouswastes","toxicsubstances","toxicpollutants",orwordsofsimilarimport,underanyEnvironmentalLaw;and(c)anyotherchemical,material,substanceorwaste,exposuretowhichisnowprohibited,limitedorregulatedunderanyEnvironmentalLawinajurisdictioninwhichBrooklynUnionoranyoftheBrooklynUnionSubsidiariesorBrooklynUnionJointVenturesoperates(forpurposesofthisSECTION4.11)orinwhichLILCOoranyoftheLILCOSubsidiariesorLILCOJointVenturesoperates(forpurposesofSECTION5.11).(iv)"RELEASE"meansanyrelease,spill,emission,leaking,injection,deposit,disposal,discharge,dispersal,leachingormigrationintotheatmosphere,soil,surfacewater,groundwaterorproperty.SEcTIQN4.12REGULATIONASAUTILITY.ExceptassetforthinSection4.12oftheBrooklynUnionDisclosureSchedule,neitherBrooklynUnionnorany"subsidiarycompany"or"affiliate"(assuchtermsaredefinedinthe1935Act)ofBrooklynUnionissubjecttoregulationasapublicutilityorpublicservicecompany(orsimilardesignation)byanystateintheUnitedStatesotherthanNewYorkoranyforeigncountry.IStlcrtoN4.13VOTEREQUIRED.TheadoptionofthisAgreementbytwo-thirdsofthebootesentitledtobecastbyallholdersofBrooklynUnionCommonStock(the"BROOKLYNUNIONSHAREHOLDERS'PPROVAL")istheonlyvoteoftheholdersofanyclassorseriesofthecapitalstockofBrooklynUnionoranyofitssubsidiariesrequiredtoadoptthisAgreementandtheothertransactionscontemplatedhereby.SEcnow4.14ACCOUNTINGMATTERS.NeitherBrooklynUnionnor,toBrooklynUnion'sbestknowledge,anyofitsaffiliateshastakenoragreedtotakeanyactionthatwouldpreventtheCompanyfromaccountingforthetransactions'tobeeffectedPursuanttothisAgreementasapoolingofinterestsinaccordancewithGAAP.AsusedinthisAgreement(exceptasspecificallyotherwisedefined),theterm"AFFILIATE'xceptwhereotherwisedefinedherein,shallmean,astoanyperson,anyotherpersonwhichdirectlyorindirectcontrols,orisundercommoncontrolwith,oriscontrolledby,suchperson.Asusedinthisdefinition,"CONTROL"'including,withitscorrelativemeanings,"controlledby"and"undercommoncontrolwith")shallmeanpossession,directlyorindirectly,ofpowertodirectorcausethedirectionofmanagementorpolicies(whetherthroughownershipofsecuritiesorpartnershiporotherownershipinterests,bycontractorotherwise).SEcl'ION4.15APPLICABILITYOFCERTAINPROVISIONSOFLAW.AssumingtherepresentationandwarrantyofLILCOmadeinSECTION5.18iscorrect,noneofthebusinesscombinationprovisionsofSection912oftheNYBCLoranysimilarprovisionsoftheNYBCL(or,tothebestknowledgeofBrooklynUnion,anyothersimilarstatestatute)ortheRestatedCertificateofIncorporationorby-lawsofBrooklynUnion,areapplicabletothetransactionscontemplatedbythisAgreement,includingthegrantingorexerciseoftheBrooklynUnionStockOption(exceptassetforthinSection4.15oftheBrooklynUnionDisclosureSchedule).SEcnox4.16OPINIONOFFINANCIALADVISOR.BrooklynUnionhasreceivedtheopinionofMerrillLynch,Pierce,Fenner&SmithIncorporated("MERRILLLYNCH"),datedDecember29,1996,totheeffectthat,asofthedatethereof,theOriginalRatioisfairfromafinancialpointofviewtotheholdersofBrooklynUnionCommonStock,andBrooklynUnionhasreceivedtheopinionofMerrillLynchdatedJune27,1997,totheeffectthat,asofthedatethereof,theLIPARatio{asdefinedbelow)isfairfromafinancialpointofviewtotheholdersofBrooklynUnionCommonStock.SEcflON4.17INSURANCE.ExceptassetforthinSection4.17oftheBrooklynUnionDisclosureSchedule,BrooklynUnionandeachoftheBrooklynUnionSubsidiariesis,andhasbeencontinuouslysinceJanuary1,1991,insuredwithfinanciallyresponsibleinsurersinsuchamountsandagainstsuchrisksandlossesasarecustomaryinallmaterialrespectsforcompaniesconductingthebusinessasconductedbyBrooklynUniandtheBrooklynUnionSubsidiariesduringsuchtimeperiod.ExceptassetforthinSection4.17oftheBrookl nionDisclosureSchedule,neitherBrooklynUnionnoranyoftheBrooklynUnionSubsidiarieshasreceivedanynoticeofcancellationorterminationwithrespecttoanymaterialinsurancepolicyofBrooklynUnionorany'fthe,BrooklynUnionSubsidiaries.TheinsurancepoliciesofBrooklynUnionandeachoftheBrooklynUnionSubsidiariesarevalidandenforceablepoliciesinallmaterialrespects.SEcTIoN4.18OWNERSHIPOFLILCOCOMMONSTOCK.ExceptpursuanttothetermsoftheLILCOStockOptionAgreement,BrooklynUniondoesnot,"beneficiallyown"(assuchtermisdefinedforpurposesofSection13(d)oftheExchangeAct)anysharesofLILCOCommonStock.SEcrioN4.19BUSINESSSYNERGIES.BrooklynUnionisnotawareofanyfactorcircumstance,includingthetermsofanyagreementtowhichitoranyofitsSubsidiariesissubject,thatwouldimpairinanymaterialrespecttheabilityoftheCompanytorealizethesynergiesdescribedinthejointpressreleasetobeissuedinconnectionwiththeannouncementofthistransaction.ARTICLEVREPRESENTATIONSANDWARRANTIESOFLILCOLILCOrepresentsandwarrantstoBrooklynUnionasfollows:SECTIoN5.1ORGANIZATIONANDQUALIFICATION.Exceptassetforth'inSection5.1.oftheLILCODisclosureSchedule(asdefinedinSECTION7.6(i)),eachofLILCOandeachoftheLILCOSubsidiaries(asdefinedbelow)isacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofits'jurisdictionofincorporationororganization,hasallrequisitecorporatepowerandauthority,andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetsandpropertiestotheextentowned,leasedandoperatedandtocarryonitsbusinessasitisnowbeingconductedandisdulyqualifiedandinoodstandingtodobusinessfineachjurisdictioninwhichthenatureofitsbusiness'ortheownershiporleasingitsassetsandpropertiesmakessuchqualificationnecessary.AsusedinthisAgreement,theterm"LILCOBSIDIARY"shallmeanaSubsidiaryofLILCO.SECTIQN5.2SUBSIDIARIES;Section5.2oftheLILCODisclosureSchedulesetsforthadescriptionasofDecember29,1996ofallSubsidiariesandJointVenturesofLILCO("LILCOJOINTVENTURES"),including(a)thenameofeachsuchentityandLILCO'sinteresttherein,and(b)abriefdescriptionoftheprincipallineor.linesofbusinessconductedbyeachsuchentity.ExceptassetforthinSection5.2oftheLILCODisclosureSchedule,noneoftheLILCOSubsidiariesisa"publicutilitycompany",a"holdingcompany",a"subsidiarycompany"oran"affiliate"ofanypublicutilitycompanywithinthemeaningofSection2(a)(5),2(a)(7),2(a)(8)or2(a)(11)ofthe1935Act,respectively.ExceptassetforthinSection5.2oftheLILCODisclosureSchedule,alloftheissuedandoutstandingsharesofcapitalstockofeachLILCOSubsidiaryarevalidlyissued,fullypaid,'nonassessableandfreeofpreemptiverights,andareowneddirectlyorindirectlybyLILCOfreeandclearofanyliens,claims,encumbrances,securityinterests,equities,chargesandoptionsofanynaturewhatsoeverandtherearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatinganysuchLILCOSubsidiarytoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofitscapitalstockorobligatingittogrant,extendorenterintoanysuchagreementorcommitment.SECTIoN5.3CAPITALIZATION.TheauthorizedcapitalstockofLILCOisassetforthinLILCO'sAnnualReportonForm10KfortheyearendedDecember31,1995.AsofthecloseofbusinessonDecember27,1996,therewereissuedandoutstanding120,780,792sharesofLILCOCommonStock.AlloftheissuedandoutstandingsharesofthecapitalstockofLILCOare,andanyLILCOCommonStockissuedpursuanttotheLILCOStockOptionAgreementwillbe,validlyissued,fullypaid,nonassessable(subjecttoSection630oftheCL),andfreeofpreemptiverights.ExceptassetforthinSection5.3oftheLILCODisclosureSchedule,asDecember29,1996,therearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesor other'ommitments,.understandings',.restrictions,-arrangements,rights"orwarrants,":includingany-right,o'conversionor,exchangeunderanyoutstanding=security,instrument"orotheragreement;~obligating.LILCOoranyioftheLILCOSubsidiariestoissue,deliver'orsell;-orcausetobeissueddelivered-or.Cold;.additionalsharesofthecapitalstockofLILCO,orobligating.LILCO.to:grant;ex(endorenterpinto'~anysuchagreement.orcommitment,otherthanundertheLILCOStockOptionAgreement.TherearenooutstandingstockappreciationrightsofL'ILCOwhich'wereno'tgrantedintandemwitha'relatedstockoption'andnooutst'andinglimit'edstock'appreciationrightsorotherrightsto'redeemfor'cash"options'oiwarrarifh'ofLIL'CO:.SECTION5.4AUTHORITY'ON-CONTRAVENTION;STATUTORYAPPROVALS;COMPLIANCE.~(a),AUTHORITY".LILCOhasall,xequisitepowerandauthoritytoenter,intothis,Agreement,andtheLILCOStoepOptionAgreement,-and,subjecttothe,LILCOShareholders'iApproval,(asdefined,in,SECI'ION5.13)andtheLILCORequiredStatutoryApprovals.,(asdefined.inSECTION5.4(c)),toconsurruyatethetransa'ctionscontemplatedherebyorthereby.TheexecutionanddeliveryofthisAgreementandtheLILCOStockOptionAgreementandtheconsummationbyLILCOofthetransactionscontemplatedherebyandtherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthe,partofLILCO,subjecttoobtainingtheapplicableLILCOShareholders'pproval.ThisAgreementhasPeendulyandvalidlyexecutedanddeliveredbyLILCO,theLILCOStockOptionAgrcem'enthasbeendulyandvalidlyexecutedanddeliveredbyLILCOand,assumingthedueauthorization,executionanddelivery,hereofandther<ofPy,theothersignatoriesheretoandthereto,eachofthisAgreementandtheLILCOStockOptionAgreement,constitutesthevalidandbindingobligationofL'ILCO,'enforceableagainstitinaccordancewithi8terms.',">,'<<.(b)NON-COIgRAVENTIONi.Exceptassetfourth,in'ection5.4(b)of.the+ILCODisclosure$cheduJe,iheexecutionanddeliveryofthis.Agreementandthe,LILCOStockOptionAgreelnent.by,LILCOd9:got,andtheconsumma>ionofthetransactionscontemplatedherebyortherebywillno<,resultin,amaterial,Violationpursuant,toany.provisions,,of(i)thecertificatof.incorporation,by;laws-or~similargoverning<<documentsof.LILCO;oranyofthe,LILCOSubsidiariesortheLILCOJoint,Ventures(ii)subject,toobtainingthe,LILCORequiredStatutoryApprovalsandthereceiptof,the,LILCOShareholders'pproval,any,statute,law;ordinanrule,regulation,judgment,decree,order,injunction,writ,~permitor,license,of<<any.Goyernmental<<AuthoriapplicabletoLILCOoranyoftheLILCOSubsidiariesortheLILCOJointVenturesoranyoftheirrespectivepropertiesorassetsor(iii),subjecttoobtainingthethird-party'consents'setforth'inSection.5:4(b)ofitheL'ILCODisclosureSchedule(the"LILCOREQUIRED.CGNSENTS")anymaterialnote,bond,"mortgage,indenture,deedoftrust;license,franchise,permit,concession,coritract',leaseorother'inst'rument,obligation,oragreementof~any,kindtowhichLILCOoranyof.theLILCOSubsidiaries,or'heLILCO.Joint"Venturesisap'arty,or-by,whichit,'ranyofitspropertiesorassetsmaybeboundoraffected.",'",I(c)STATUTORYAPPROVALS.Nodeclaration,filingorregistration,with,ornoticetoorauthorization,consentorapprovalof,,any,Governmental<<Authorityis.iiecessary,foi;,the,executionand,deliveryofthisAgreementor,the.LILCOStockOptionAgreement"byLILCO,,orthe,consummation"by",LILCO,of,thetransactionscontemplatedherebyorthereby,exceptasdescribcdrinSection,$.4(c)ofthe,J.ILCODisclosure,Schedule(the"LILCOREQUIRED,STATUTORYAPPROVALS.',itbeing~understoodthatreferencesin~thipAgreementto"obtaining"suchLILCORequiredStatutory,Approyalsshall'mean;making,such.declarations,filingsorregistrations;,givingsuchnotices;obtainingsuchauthorizationsconsentsor.approvals;-andhavingsuchwaitingperiods.expireasarenecessarytoavoidaviolationoflaw).W'I(d)COMPLIANCE.ExceptassetforthinSection5.4(d),Section5.10orSection5.11oftheLILCO.DisclosureSchedule,orasdisclosedintheLILCOSEC.Reports.(asdefinedin'.SECTIGN5.5)filed-priortoDecember29,1996,neitherLILCO:norany'oftheLILCOSubsidiariesnor,to',th6knowledgeofLILCO,;anyLILCOJoint.Venture,isinmaterialviolationof,isunderinv'estig'ationwithresp'ectfoanymaterialviolation'of,or,hasbeen.givennoticeorbeenchargedwithanymaterial-violationof,any:law;statute,'rder,,rule;regulation,ordinanceorjudginent(including;withoutlimitation,anyapplicableenviionmentallaw,.ordinanceorregulation)ofanyGovernmental.Authority.Except'asset,forthinSection5.4(d)oftheLILCODisclosure;Schedule.or'ection5.11'f.the.LILCODisclosureSchedule;LILCOandthe.LILCOSubsidiariesand,LILCO'JoiritVent veallpermits,licenses,franchisesandothergovernmentalauthorizations,consentsandapprovalsnecessarytoonducttheirbusinessesaspresentlyconductedinallmaterialrespects.ExceptassetforthinSection5.4(d)oftheLILCODisclosureSchedule,LILCOandeachoftheLILCOSubsidiariesisriotinmaterialbreachorviolationoforinmaterial-defaultintheperformanceorobservanceofanytermorprovisionof,andnoeventhasoccurredwhich,withlapseoftimeoractionbyathirdparty,couldresult,inamaterial.defaultunder,(i)itscertificateofincorporationorby-lawsor(ii)anymaterialcontract,commitment,agreement;indenture,mortgage,loanagreement,note,leasebond,license,approvalorotherinstrumenttowhichitisapartyorbywhichitisboundortowhichanyofitspropertyissubject.iSEcTloN5.5REPORTSANDFINANCIALSTATEMENTS.ThefilingsrequiredtobemadebyLILCOandtheLILCOSubsidiariessinceJariuary1,1994undertheSecuritiesAct,theExchangeAct,the1935Act,thePowerAct,theAtomicEnergyActandapplicablestatelawsandregulationsh'avebeenfiledwiththeSEC,theFERC,theNRCortheappropriatestatepublicutilitiescommission,asthecasem'aybe,includingallforms,statements;repprts,agreements,(oral"orwritten).andalldocuments,exhibits,amendmentsandsupplementsappertainingthereto,andcomplied,asoftheirrespectivedates,inallmaterialrespectswithallapplicablerequirementsoftheappropriatestatuteandtherulesandregulationsthereunder.LILCOhasmadeavailabletoBrooklynUnionatrueandcompletecopytifeachreport,schedule,registrationstatementanddefinitiveproxystatementfiled'byLILCOwiththeSECsinceJanuary1,1994(assuchdocumentshave'sincethetimeoftheirfilingbeenamertded,the'LILCOSEC'REPORTS").Asoftheirrespectivedates,theLILCOSECReportsdidnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfactrequiredtobestatedthereinornecessarytomakethestatemepts,therein,inlightofthecircumstancesunderwhichtheyweremade,notmisleading.TheauditedconsolidatedfinancialstatementsandunauditedinterimfinancialstatementsofLILCOincludedintheLILCOSECReports(collectively,the"LILCOFINANCIALSTATEMENTS")havebeenpreparedinaccordancewithGAAP(exceptasmaybe'indicatedthereinorinthenotestheretoandexceptwithrespecttounauditedstatementsaspermittedbyForm10-QoftheSEC)andfairlypresentthefinancialpositionofLILCOasofthedatesthereofandtheresultsofitsoperationsandcashfiowsforthep'eriodsthenended,bject,inthecaseoftheunauditedinterim'financialstatements,tonormal,'ecurringauditadjustments.True,urateandcompletecopiesoftheRestatedCertificateofIncorporationandBy-lawsofLILCO,asineffectonecember29,1996,areincluded(orincorporatedbyreference)intheLILCOSECReports.SEGHQN5.6ABSENCEOFCERTAINCHANGESOREVENTS.ExceptasdisclosedintheLILCOSECReportsfiledpriortoDecember29,1996orassetforthinSection5.6oftheLILCODisclosureSchedule,sinceDecember31,1995,'ILCOand.eachoftheLILCOSubsidiarieshaveconductedtheirbusinessonlyintheordinarycourseofbusinessconsistentwithpastpracticeandtherehasnotbeen,andnofactorconditionexistswhichwouldhave,or,insofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperationsorprospectsofLILCOanditssubsidiariestakenasawhole(a"LILCOMATERIALADVERSEEFFECT").SEcHoN5.7LITIGATION.'xceptasdisclosedintheLILCOSECReportsfiledpriortoDecember29,1996orassetforthinSection5.'7,Section5.9orSection5.11oftheLILCODisclosureSchedule,(i)therearenomaterial.claims,suits,actionsorproceedings,pendingor,totheknowledgeofLILCO,threatened,norarethere,totheknowledgeofLILCO,anymaterialinvestigations-orreviewspendingor,threatenedagainst,relatingtooraffectingLILCOoranyoftheLILCOSubsidiaries,(ii)therehavenotbeen,anysignificantdevelopmentssinceDecember31,1995withrespecttosuchdisclosedclaims,suits,actions,proceedings,investigationsorreviewsand(iii)thereareno'materialjudgments,decrees,injunctions,rulesorordersofanycourt,governmentaldepartment,commission,agency,instrumentalityor'uthorityoranyarbitratorapplicabletoLILCOoranyoftheLILCOSubsidiaries.Sorrow5.8REGISTRATIONSTATEMENTANDPROXYSTATEMENT.NoneoftheinformationsuppliedortobesuppliedbyoronbehalfofLILCOforinclusionorincorporationbyreferencein(i)theRegistrationStatementwill,atthetimetheRegistrationStatement;isfiledwiththeSECandatthetimeitomeseffectiveundertheSecuritiesAct,containanyuntruestatementofamaterialfactoromittostateanyerialfactrequiredtobe-statedthereinornecessarytomakethestatementsthereinnotmisleadingand(ii)the ProxyStatementwillnot,atthedatesmailedtoshareholdersandatthetimesof;themeetingsofshareholderstbeheldinconnection;withtheTransactions,containanyuntrue"statementofaimateriaJfactoromit.to.stateanmaterial,fact.required.tobe-statedthereinornecessaryinordertomakethestatementstherein,inlightofthecircumstances.underwhichtheyaremade,notmisleading.TheRegistrationStatementandtheProxyStatementwillcomplyastoform,inallmaterialrespectswiththeprovisions-oftheSecurities.ActandtheExchangeActand,therulesandregulationsthereunder.-IIISsertoN5.9TAXMATTERS.ExceptassetforthinSection5.9,oftheLILCO'DisclosureSchedule:(a)FILING,OFTIMELYTAXRETURNS.I.ILCOandeachof.theLILCO,Subsidiarieshavefiled(ortherehasbeenfiledonitsbehalf)allmaterialTaxReturnsrequiredtobefiledbyeachoftotemunderapplicablelaw.All,suchTaxReturnswereandareinallmaterialrespectstrue,completeandcorrectandfiledonatimelybasis.(b)PAYMENTGFTAXES.'ILCOandeach'oftheLILCOSubsidiarieshave,withinthetimeand"inthemannerprescribedbylaw,paidallTaxesthatarecurrently'due'and'payableexceptforthosecontestedingoodfaithandforShtchadequatereserves'havebeentaken.'(c)TAXRESERVES.LILCO,andtheLILCOSubsidiaries'haveestablishedontheirbooksandrecordsreservesadequatetopay.all,Taxes,andreserves'fordeferredincometaxesinaccordancewithGAAP.(d)TAXLIENS.TherearenoTaxliensupontheassetsofL'ILCO'ora'ny'oftheLILCOSubsidiaries'xceptliensforTaxesnotyetdue.-''""""-""~'*'(e)WG'HHOLDINGTAXES.LILCOandeachoftheLILCOSubsidiaries,have,compliedinall,.materialrespects,withtheprovisions,oftheCoderelatingto.the,withholdingofTaxes,aswellassimilarprovisionsunderanyotherlawsandhave,withinthetimeandinthemannerprescrjbedbylaw,withheldfromemployeewages.andpaidoyertothepropergovernmentalauthoritiesallamountsrequired.(f)EXTENSIONSOFTIMEFORFILINGfAXRETURNS.'either'LILCOnoranyoftheLILSubsidiarieshasrequestedanyextensionoftimewithinwhich'to'ile'nyTaxReturn,whichTaxReturthasnotsincebeen,filed..~(g).WAIVERSOF.STATUTEOFLIMITATIONS.NeitherLILCOnoranyoftheJ.ILCOSubsidiarieshas.ex'ecutedanyoutstanding'waiversorcomparableconsentsregardingtheapplicationofthestatuteoflimitationswithrespecttoanyTaxesorTaxReturns.,",'h}'EXPIRATIONOFSTATUTEOFI.'IMITATIONS.Thestatuteoflimitationsfortheassessment'fallTaxeshasexpiredforallapplicableTaxReturnsofLILCO.and"eachoftheLILCOSubsidiariesorthoseTaxReturnshavebeenexaminedbytheappropriatetaxingauthoritiesforallperiodsthroughDecember29,1996,andnodeficiencyforanyTaxeshasbeenproposed,assertedorassessedagainstLILCOoranyoftheLILCOSubsidiaries;thathasnotbeenresolved,and,paidinfull.(i)AUDIT,ADMINISTRATIVEANDCOURT'PROCEEDINGS."'oauditsorotheradministrative'proceedingsorcourtproceedingsarepresently"pendingwithregardtoanyTaxesorTaxReturnsofLILCOor'a'nyoftheLILCOSub'sidiaries.~(j)POWERSOFATtORNEY.NopowerofattorneycurrentlyinforcehasbeengrantedbyLILCO,oranyoftheLILCOSubsidiariesconcerningany,Taxmatter.(k)TAXRULINGS.NeitherLILCOnoranyoftheLILCOSubsidiarieshas'receivedaTaxRulingorenteredintoaClosingAgreementwithanytaxingauthoritythatwouldhaveacontinuingadverseeffectaftertheClosingDate.tl(I)AVAIL'ABILITYOFTAXRETURNS.LILCOhasmadeavailabletoBrooklynUnioncompleteandaccuratecopiesof(i)allTaxReturns,andanyamendmentsthereto;filedbyLILCOoranyof'ILCOSubsidiaries,(ii)allauditreportsreceivedfromanytaxingauthorityrelatingtoanyTaxReturn byLILCOoranyoftheLILCOSubsidiariesand(iii)anyClosingAgreementsenteredinto,byLILCOoranyoftheLILCOSubsidiarieswithanytaxingauthority.(m)TAXSHARINGAGREEMENTS.'NeitherLILCOnoranyLILCOSubsidiaryisa'partytoanyagreementrelatingtoallocatingorsharingofincomeTaxes.4(n)CODESECTION280G.NeitherLILCOnoranyoftheLILCOSubsidiaries,isapartytoanyagreement,contract,orarrangementthatcouldresult,onaccountofthetransactionscontemplatedhereunder,separatelyorintheaggregate,inthepaymentofany"excessparachutepayments"withinthemeaningofSection280GoftheCode.(o)LIABILITYFOROTHERS.NoneofLILCOoranyoftheLILCOSubsidiarieshasanyliabilityforTaxesofanypersonotherthanLILCOandtheLILCOSubsidiaries(i)underTreasuryRegulationsSection1.1502-6(oranysimilarprovisionofstate,localorforeignlaw)asatransfereeorsuccessor,(ii)bycontract,or(iii)otherwise.SEcTIoN5.10EMPT.OYEEMATTERS;ERISA.ExceptassetforthinSection5.10oftheLILCODisclosureSchedule:(a)BENEFITPLANS.Section5.10(a)oftheLILCODisclosureSchedulecontainsatrueandcompletelistofeachemployeebenefitplancoveringemployees,formeremployeesordirectorsofLILCOandeachoftheLILCOSubsidiariesortheirbeneficiaries,orprovidingbenefitstosuchperson'sinrespectofservicesprovidedtoanysuchentity,including,butnotlimitedto,'nyemployeebenefitplanswithinthemeaningofSection3(3)ofERISAandanyseveranceorchangeincontrol'agreement(collectively,the"LILCOBENEFITPLANS").ForthepurposesofthisSECTION5.10only,theterm"LILCO"shallbedeemedtoincludethepredecessorsofsuchcompany.(b)CONTRIBUTIONS.AllmaterialcontributionsandotherpaymentsrequiredtobemadebytLILCOoranyoftheLILCOSubsidiariestoanyLILCOBenefitPlan(ortoanypersonpursuanttothetermsthereof)havebeenmadeortheamountofsuchpaymentorcontributionobligationhasbeerirefiectedintheLILCOFinancialStatements.(c)QUALIFICATION;COMPLIANCE.EachoftheLILCOBenefitPlansintendedtobe"qualified"withinthemeaningofSection401(a)oftheCodehasbeendeterminedbytheIRStobesoqualified,and,tothebestknowledgeofLILCO,nocircumstancesexistthatarereasonablyexpectedbyLILCOtoresultintherevocationofanysuchdetermination.LILCOisincomplianceinallmaterialrespectswith,andeachoftheLILCOBenefitPlansisandhasbeenoperatedinallmaterialrespectsincompliancewith,allapplicablelaws,rulesandregulationsgoverningsuchplan,including,withoutlimitation,ERISAandtheCode.EachLILCOBenefitPlanintendedtoprovideforthedeferralofincome,thereductionofsalaryorothercompensation,ortoafford'otherincometaxbenefits,complieswiththerequirementsoftheapplicableprovisionsoftheCodeorotherlaws,rulesandregulationsrequiredtoprovidesuchincometaxbenefits.(d)LIABILITIES.WithrespecttotheLILCOBenefitPlans,individuallyandintheaggregate,noeventhasoccurred,and,tothebestknowledgeofLILCO,theredoesnotnowexistanyconditionorsetofcircumstances,thatcouldsubjectLILCOoranyoftheLILCOSubsidiari&toanymaterialliabilityarisingundertheCode,ERISAoranyotherapplicablelaw(including,withoutlimitation,anyliabilitytoanysuchplanorthePBGC),orunderanyindemnityagreementtowhichLILCOisaparty,excludingliabilityforbenefitclaimsandfundingobligationspayableintheordinarycourse.(e)WELFAREPLANS.NoneoftheLILCOBenefitPlansthat.are"welfareplans",withinthemeaningofSection3(1).ofERISA,providesforanyretireebenefits,otherthancontinuationcoveragerequiredtobeprovidedunderSection4980BoftheCodeorPart6ofTitleIofERISA.(I)DOCUMENTSMADEAVAILABLE.LILCOhasmadeavailabletoBrooklynUnionatrueandtcorrectcopyofeachcollectivebargainingagreementtowhichLILCOoranyoftheLILCOSubsidiariesisapartyorunderwhichLILCOoranyoftheLILCOSubsidiarieshasobligationsand,withrespecttoeach iL'ILCOBenefitPlan,where,applicable;(i)suchplanandsummaryplandescrip'tion,{ii)themo'streceannualreportfiledwiththeIRS,(iii)eachrelatedtrustagreement,"insurancecontract,serviceproviderorinvestmentmanagementagreement(includingallamendmentsto,,eachsuchdocument),(iv)themostrecentdeterminationoftheIRSwithrespecttothequalifiedstatusofsuchLILCOBenefitPlan,and(v)themostrecentactuarialreportorvaluation."(g)PAYMENTS'ESULTINGFROM'THE'RANSACTIONS.(i)TheconsummationorannouncementofanytransactioncontemplatedbythisAgreementwillnot(eitheraloneoruponthe'occurrenceofanyadditionalorfurther'actsorevents)resultinany(A)p'ayment(whetherofseverancepayorotherwise)becomingduefromLILCOoranyoftheLILCOSubsidiariestoanyofficer,employee,former""employeeordirector'thereofor'tothetrusteeunderany"rabbitrust>"orsimilararrangement;or(B)benefit'under'nyLIL'COBenefit.Planbeingestablishedorbecomingaccelerated,vestedorpayableand{ii)neither~LILCOnoranyofthe'LILCO'Subsidiariesisapartyto(A)anymanagement,employment,deferredcompensation,severance(includinganypayment,rightorbenefitresultingfromachangeincontrol),bonusorothercontractforpersonalserviceswithanyofficer,directororemployee,(B)anyconsultingcontractwith'any"'personwho'priortoentering'-'intosuchcontractwas'adirectororofficerofLILCO,'or(C)anyplan,agreement,arrangementorunderstandingsimilartoanyoftheforegoing.(h)LABORAGREEMENTS.AsofDecember29,1996,exceptas,setforth'inSection5.10(h)oftheLILCO'DisclosureSchedule'or'intheLILCOSECReportsfiledpriortoDecember29,1996',neither'ILCOnor'anyoftheLILCOSubsidiariesisapartyto,"anycollectivebargamingagreementorotherlabor","agreementwitlianyunionorlabororganization.To'thebestknowledgeofLILCO,asofDecember,29,'1996,exceptasset'forth'inSection5.10(h)oftheLILCODisclosureSch'edule,,thereisnocurrentunionrepresentationquestioninv'olvmgemployeesofLILCOoranyoftheLILCOSubsidiaries,noidoesLILCOknowofanyactivityorproceedingofanylabororganization(orrepresentativethereof)or'employeegrouptoorganizeanysuchemployees:ExceptasdisclosedintheLILCOSECReportsfiledpriortoDecember29.1996,orinSection5.10(h)oftheLILCODisclosureSchedule,(i)thereisnounfairlaborpractice,=,employmentdiscriminationorothermaterialcomplaintagainstLILCOoranyoftheLILCOSubsidia'ending,ortothebestknowledgeofLILCO,threatened,(ii)thereisnostrike,orlockoutormater=dispute,slowdownorworkstoppagepending,ortothebeytknowledgeof.LILCO,threatened,againstorinvolvingLILCO,and(iii)thereisnoproceeding,claim,'uit,actionorgovernmentalinvestigationpending,or,tothebestknowledgeofLILCO,threatened,inrespectofwhich'nydirector,officer,'employeeoragentofLILCOoranyoftheLILCO.Subsidiariesisormaybee'ntitledtoclaimindemnificationfromLILCOorsuchLILCOSubsidiarypursuanttotheirrespectivecertificatesofincorporationorby-lawsorasprovidedinthe,indemnificationagreementslistedinSection5.10(h)oftheLILCODisclosureSchedule.*1)1SEGTIQN,5.11ENVIRONMENTALPROTECTION.ExceptassetforthinSection5.11of-.theLILCODisclosureScheduleorintheLILCOSECReportsfiledprior.toDecember29,1996:(a)COMPLIANCE.LILCOandeachoftheLILCOSubsidiariesisinmaterialcompliancewithallapplicableEnvironmentalLaws;andneitherLILCOnoranyoftheLILCOSubsidiarieshasreceivedanycommunication(writtenororal)fromanypersonorGoverntriental,Authority>hatalleges,thatLILCOoranyoftheLILCOSubsidiariesisnotinsuchcompliancewith.applicableEnvironmentalLaws.(b)''ENVIRONMENTALPERMITS.LILCOand'eachoftheLILCOSubsidiaries'hasobtainedorha'sapplied'foralltheEnvironmentalPermitsnecessary.forthe'onstructionoftheirfacilitiesortheconductoftheiroperations,andallsuchEnvironmentalPermitsareingoodstandingor,whereapplicable,arenewalapplicationhasbeentimelyfiledandispendingagency,approval,andLILCOandtheLILCOSubsidiariesareinmaterialcompliancewithalltermsand,conditionsoftheEnvironmentalPermits..'c)ENVIRONMENTALCLAIMS.Tothebestknowledge"ofLILCO,thereisnomaterial'EnvironmentalClaimpending(i)againstL'ILCOorariyoftheLILCOSubsidiariesorLILCOJointVentures,(ii)againstanypersonorentitywhoseliabilityforanyEnvironmentalClaimL'ILCOoranytheLILCOSubsidiarieshasormayhaveretainedor'assumedeithercontractuallyorbyoperationoflaA-20 e(iii)againstanyrealorpersonalpropertyoroperationswhichLILCOoranyoftheLILCOSubsidiariesowns,leasesormanages,inwholeorinpart.(d)RELEASES.LILCOhasnoknowledgeofanymaterialReleasesofanyHazardousMaterialthatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaimagainstJ.ILCOoranyoftheLILCOSubsidiaries,oragainstanypersonorentitywhoseliabilityforanymaterialEnvironmentalClaimLILCOoranyoftheLILCOSubsidiarieshasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw.(e)PREDECESSORS.LILCOhasnoknowledge,withrespecttoanypredecessorofLILCOoranyoftheLILCOSubsidiaries,ofanymaterialEnvironmentalClaimpendingorthreatened,orofanyRelease'fHazardousMaterialsthatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaim.(f)DISCLOSURE.ToLILCO'sbestknowledge,LILCOhasdisclosedtoBrooklynUnionallmaterialfactswhichLILCOreasonablybelievesformtliebasisofamaterialEnvironmentalClaimarisingfrom(i)thecostofLILCOpollutioncontrolequipment,currentlyrequiredorknowntoberequiredinthefuture;(ii)currentLILCOremediationcostsorLILCOremediationcostsknowntoberequiredinthefuture;or(iii)anyotherenvironmentalmatteraffectingLILCO.SEGTION5.12REGULATIONASAUTILITY.Exceptassetforthin,Section5.12oftheLILCODisclosureSchedule,neitherLILCOnorany"subsidiarycompany"or"affiliate"(assuchtermsaredefiinedinthe1935Act)ofLILCOissubjecttoregulationasapublicutilityorpublicservicecompany(orsimilardesignation)byanystateintheUnitedStatesotherthanNewYorkoranyforeigncountry.SEcl'toN5.13VOTEREQUIRED.The'doptionofthisAgreementbytwo-thirdsofthevotesentitledtobecastbyallholdersofLILCOCommonStock(collectively,the"LILCOSHAREHOLDERS'PPROVAL")istheonlyvoteoftheholdersofanyclassorseriesofthecapitalstockofLILCOoranyofitssubsidiaries'quiredtoadoptthisAgreementandtheothertransactionscontemplatedhereby.lVSt:.crtoN5.14ACCOUNTINGMATTERS.NeitherLILCOnor,toLILCO'sbestknowledge,anyofitsaffiliateshastakenoragreedtotakeanyactionthatwouldpreventtheCompanyfromaccountingforthetransactionstobeeffectedpursuanttothisAgreementasapoolingofinterestsinaccordancewithGAAPifthetransactionscontemplatedbytheLIPAAgreement,arenotconsummated.lSacnox5.15APPLICABILITYOFCERTAINPROVISIONSOFLAW.AssumingthattherepresentationandwarrantyofBrooklynUnionmadeinSECTION4.18iscorrect,noneofthebusinesscombinationprovisionsofSections912oftheNYBCLoranysimilarprovisionsoftheNYBCL(or,tothebestknowledgedfLILCO,anyothersimilarstatestatute)ortheRestatedCertificateofIncorporationorby-lawsofLILCO,areapplicabletothetransactionscontemplatedbythisAgreement,includingthegrantingorexerciseoftheLILCOStockOption(exceptassetforthinSection5.15oftheLILCODisclosureSchedule).SEclION5.16OPINIONOFFINANCIALADVISOR.LILCOhasreceivedtheopinionofDillon,Read0,Co.Inc.("DILLONREAD"),datedDecember29,1996totheeffectthat,asofthedatethereof,the'OriginalRatioisfairfromafinancialpointofviewtotheholdersofLILCOCommonStock,andLILCOhas'receivedtheopinionofDillonReaddatedJune27,1997,totheeffectthat,asofthedatethe'reof,theI,IPARatioisfairfromafinancialpointofviewtotheholdersofLILCOCommonStock.SEGTIQN5.17INSURANCE.ExceptassetforthinSection5.17oftheLILCODisclosureSchedule,LILCOandeachoftheLILCOSubsidiariesis,andhasbeencontinuouslysinceJanuary1,1991,insuredwithfinanciallyresponsibleinsurersinsuchamountsandagainstsuchrisksandlossesasarecustomaryinallmaterialrespectsforcompaniesconductingthebusinessasconductedbyLILCOandtheLILCOSubsidiariesduringsuch1'meperiod.Exceptasse'tforthinSanction5.17oftheLILCODisclosureSchedule,neitherLILCO'noranyofeLILCOSubsidiarieshasreceivedanynoticeofcancellationorterminationwithrespecttoany'aterial insurancepolicyofLILCOoranyoftheLILCOSubsidiaries.TheinsurancepoliciesofLILCOandeachoftheLILCOSubsidiariesarevalidandenforceablepoliciesinallmaterialrespects.SEcTioN5.18OWNERSHIPOFBROOKLYNUNIONCOMMONSTOCK.Exceptpursuanttothetermsofth'eBrooklynUnionStockOptionAgreement,LILCOdoesnotbeneficiallyown(assuchtermisdefinedforpitrposesofSection13(d)oftheExchangeAct)anysharesofBrooklynUnionCommonStockorBrooklynUnioriPreferredStock..SEcTioN5.19.BUSINESSSYNERGIES.LILCOisnotawareofanyfactorcircumstance,includingthetermsofanyagreementtowhichitoranyofitsSubsidiariesissubject,thatwouldimpairinanymaterialrespecttheabilityoftheCompanytorealizethesynergiesdescribedinthejointpressreleasetobeissuedinconnectionwiththeannouncementofthistransaction.ARTICLEVIICONDUCTOFBUSINESSPENDINGTHEEFFECTIVETIMEiSEGTIQN6.1COVENANTSOFTHEPARTIES.AfterthedatehereofandpriortotheEffectiveTimeorearlierterminationofthisAgreement,BrooklynUnionandLILCOeachagreeasfollows,eachastoitselfandtoeachoftheBrooklynUnionSubsidiariesandtheLILCOSubsidiaries,asthecasemaybe,exceptasexpresslycontemplatedorpermittedinthisAgreement,theBrooklynUnionStockOptionAgreement,theLILCOStockOptionAgreement,theKeySpanExchangeAgreement,theLIPAAgreementandtheHedgeArrangements(asdefinedinSECTION7.18(c)),ortotheextenttheotherpartiesheretoshallotherwiseconsentinwriting:(a)ORDINARYCOURSEOFBUSINESS.Eachpartyheretoshall,andshallcauseitsSubsidiariesto,carryontheirrespectivebusinessesintheusual,regularandordinarycourseinsubstantiallythesame~,,mannerasheretoforeconductedanduseallcommerciallyreasonableeffortstopreserveintacttheirpresentbusinessorganizationsandgoodwill,preservethegoodwill.andrelationshipswithcustomers,suppliersanothershavingbusinessdealingswiththemand,subjecttoprudentmanagementofworkforceneedsanongoingprogramscurrentlyinforce,keepavailabletheservicesoftheirpresentofficersandemployees.ExceptassetforthinSection6.1(a)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,no,partyshall,norshallanypartypermitanyofitsSubsidiariesto,enterinto'anewlineofbusiness,ormakeanychangeinthelineofbusinessitengagesinasofthedatehereofinvolvinganymaterialinvestmentofassetsorresourcesoranymaterialexposuretoliabilityorloss,inthecaseofBrooklynUnion,toBrooklynUnionanditsSubsidiariestakenasawhole,andinthecaseofLILCO,toLILCOanditsSubsidiariestakenasawhole.(b)DIVIDENDS.ExceptassetforthinSection6.1(b)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,andexceptasprovidedinthelastsentenceofthis'ECTION6.1(b)nopartyshall,norshillanypartypermitanyofitsSubsidiariesto,(i)declareorpayanydividendsonormakeotherdistributionsinrespectofanyoftheircapitalstockotherthantosuchpartyor.itswholly-ownedsubsidiariesandothe'handividendsrequiredtobepaidonanyPreferredStockinaccordancewiththerespectivetermsthereof,regularquarterlydividendsonLILCOCommonStockwithusualrecordandpaymentdatesnot,duringanyfiscalyear,inexcessof103%ofthedividendsforthepriorfiscalyearandregularquarterlydividendsonBrooklynUnionCommonStockwithusualrecordandpaymentdatesnot,duringanyfiscalyear,inexcessof103%ofthedividendsforthepriorfiscalyear;(ii)split,combineorreclassifyanyoftheircapitalstockorissueorauthorizeorproposetheissuanceofanyothersecuritiesinrespectof,inadieuof,or-insubstitutionfor,sharesoftheircapitalstock;or(iii)redeem,repurchaseorotherwiseacquireanysharesoftheircapitalstock,otherthanredemptions,purchasesor,acquisitionsrequiredbytherespectivetermsofanyoutstandingseriesofpreferredstockofBrooklynUnion,orLILCO,asthecasemay,be./he1astrecorddateofeachofLILCOandBrooklynUniononorpriortotheEffectiveTimewhichrelatestoaregularquarterlydividendonLILCOCommonStockorBrooklyUnionCommonStock,asthecasemaybe,shallbethesamedateandshallbepriortotheEffectiveTimA-22 0Notwithstandingtheforegoing,priortotheLILCOEffectiveTime,,BrooklynUnionmaycausetheredemptionofallissuedandoutstandingsharesofpreferredstockofBrooklynUnioninaccordancewiththetermsthereof.(c)ISSUANCEOFSECURITIES.ExceptassetforthinSection'6.1(c)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,andexceptasprovidedinSECTION7.20nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,issue,agreetoissue,deliver,sell,award,pledge,disposeoforotherwiseencumberorauthorizeorproposetheissuance,delivery,sale,award,pledge,disposalor.otherencumbranceof,anysharesoftheircapitalstockofanyclassoranysecuritiesconvertibleintoorexchangeablefor,oranyrights,warrantsoroptionstoacquire,anysuchsharesorconvertibleorexchangeablesecurities.Thepartiesshallpromptlyfurnishtoeachothersuchinformationas'maybereasonablyrequestedincludingfinancialinformationandtakesuchactionas,maybereasonablynecessaryandotherwisefullycooperatewith,eachotherinthepreparationofanyregistrationstatementundertheSecuritiesActandotherdocumentsnecessary,inconnectionwithissuanceofsecuritiesascontemplatedbythisSECTION6.1(c),subjecttoobtainingcustomaryindemnities.(d),CHARTERDOCUMENTS.Nopartyshallamendorproposetoamenditsrespectivecertificateofincorporation,by-lawsorregulations,orsimilarorganizationaldocuments,exceptascontemplatedherein.(e)NOACQUISITIONS.,ExceptassetforthinSection6.1(e)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,acquire,orpubliclyproposetoacquire,oragreetoacquire,bymergerorconsolidationwith,orbypurchaseorotherwise,asubstantialequityinterestin,orasubstantialportionoftheassetsof,anybusinessoranycorporation,partnership,associationorotherbusinessorganizationordivisionthereof,norshallanypartyacquireoragreetoacquireamaterialamountofassetsotherthanintheordinarycourseofbusinessconsistentwithpastpractice.(f)CAPITALEXPENDITURES.ExceptassetforthinSection6.1(f)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,orasrequiredbylaw,nopartyshall,norshallanypartypermitanyof'itsSubsidiariesto,makecapitalexpendituresinexcessof110%oftheamountbudgetedbysuchpartyforcapitalexpendituresassetforthinsuchSection6.1(f)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule.-(g)NODISPOSITIONS.ExceptassetforthinSection6.1(g)of,theBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,otherthandispositionsby'partyanditsSubsidiariesoflessthan$10million,singularlyorintheaggregate,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,sell,lease,license,encumberorotherwisedisposeof,anyofitsassets,otherthanencumbrancesordispositionsintheordinarycourse'ofitsbusinessconsistentwithpastpractice.(h)INDEBTEDNESS.ExceptascontemplatedbythisAgreement,nopartyshall,norshallanypartypermit,anyofitsSubsidiariesto,incurorguaranteeanyindebtedness(includinganydebtborrowedorguaranteedorotherwiseassumedincluding,withoutlimitation,theissuanceofdebtsecuritiesorwarrantsorrightstoacquiredebt)orenterintoany"keepwell"orotheragreementtomaintainanyfinancialstatementconditionofanotherpersonorenterintoanyarrangementhavingtheeconomiceffectofanyoftheforegoingotherthanincurrencestorefinanceexistingindebtednessandotherthanassetforthinSection6.1(h)oftheBrooklynUnionDisclosure,ScheduleortheLILCODisclosureSchedule,respectively.(i)'COMPENSATION,BENEFITS.ExceptassetforthinSection6.1(i)oftheBrooklynUnionDisclosureScheduleo'rtheLILCODisclosure'Schedule,asmayberequiredbyapplicablelaworascontemplatedbythisAgreement,nopartyshall,norsliallany'partypermitanyofitsSubsidiariesto,(i)enterinto,adoptoramendorincreasetheamountoracceleratethepaymentorvestingofanybenefitoramountpayableunder,anyemployeebenefitplanorothercontract,agreement,commitment,arrangement,planorpolicymaintainedby,contributedtoorenteredintobysuchpartyoranyofitsSubsidiaries,orincrease,orenterintoanycontract,agreement,commitmentorarrangementtoincreaseinanymanner,theA-23 compensationorfringebenefits,orotherwisetoextend,expandorenhancetheengagement,employmentoranyrelatedrights,ofanydirector,officerorotheremployeeofsuchpartyoranyof,itsSubsidiaries,exceptfornormalincreasesintheordinarycourseofbusinessconsistentwithpastpracticethat,intheaggregate,donotresultinamaterialincreaseinbenefitsorcompensationexpensetosuchpartyoranyofitsSubsidiariesor(ii)enterintooramendanyemployment,severanceorspecialpayarrangementwithrespecttotheterminationofemploymentorothersimilarcontract,agreementorarrangementwithanydirectororofficerorotheremployeeotherthanintheordinarycourseofbusinessconsistentwithpastpractice.(j)1935ACT.ExceptassetforthinSection6.1(j)oftheBrooklynUnionDisclosureScheduleorLILCODisclosureSchedule,respectively,nopartyshall,norshaHanypartypermitanyofitsSubsidiariesto,exceptasrequiredorcontemplatedbythisAgreement,engageinanyactivitieswhichwouldcauseachangeinitsstatus,orthatofitssubsidiaries,underthe1935Act,orthatwouldimpairtheabilityofLILCOorBrooklynUnion,asthecasemaybe,toclaimanexemptionasofrightunderRule2ofthe1935Act.(k)TRANSMISSION,GENERATION.ExceptasrequiredpursuanttotariffsorifilewiththeFERCasofthedatehereof,intheordinarycourseofbusinessconsistentwithpastpractice,orassetforthinSection6.1(k)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,mspectively,-nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,(i)commenceconstructionofanyadditionalelectricgenerating,transmissionordeliverycapacity,or{ii)obligateitselftopurchaseorotherwiseacquire,ortosellorotherwisedisposeof,ortoshare,anyadditionalelectricgenerating,transmissionordeliverycapacityexceptassetforthinthebudgetsofBrooklynUnionandLILCOonthedatehereofassetforthinSection6.1(f)oftheBrooklynUnionDisclosureScheduleandtheLILCODisclosureSchedule.I(1)ACCOUNTING.Exceptas,setforthinSection6.1(1)oftheBrooklynUnionDisclosureScheduleorLILCODisclosureSchedule,respectively,nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,makeanychangesintheiraccountingmethods,exceptasrequiredbylaw,rule,regulationorGAAP.(m)POOLING.Nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,takeanyactiorwhichwould,orwouldbereasonablylikelyto,preventtheCompanyfromaccountingforthetransactionstobeeffectedpursuanttothisAgreementasapoolingofinterestsinaccordancewithGAAPandapplicableSECregulations,andeachpartyheretoshalluseallreasonableeffortstoachievesuchresult(includingtakingsuchactionsasmaybenecessarytocureanyfactsorcircumstancesthatcouldpreventsuchtransactionsfromqualifyingforpooling-of-interestsaccountingtreatment).(n)TAXSTATUS.Nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,takeanyactionswhichwould,orwouldbereasonablylikelyto,adverselyaffectthestatusoftheMergerasatax-freetransactiontotheholdersofBrooklynUnionCommonStockand,unlesstheLIPAAgreementhasbeenterminated,theShareExchangeasataxabletransactiontotheholdersofLILCOCommonStockandtheformationoftheCompanytobeatransactiontowhichSection351oftheCodedoesnotapply,andeachpartyheretoshalluseaHreasonableeffortstoachievesuchresultandshalltakesuchposition'inanyrelevantpublicdisclosuredocument(including,withoutlimitation,theJointProxy/RegistrationStatement(ashereinafterdefined).LILCO'smost'recenttaxyear,forfederalincometaxpurposes,commencedonApril'1,1997.AtnotimeduringtheperiodApril1,1997throughMarch31,1998,,inclusive,willLILCObeeitherthecommonparentoramemberofan"affiliatedgroup"withinthemeaningofSection1504oftheCode.LILCOwillnotwithrespecttoanytaxyearbeginningonorafterApril1,1998fileorjoininthe,filingofaconsolidatedfederalincometaxreturnwithrespecttoanyaffiliatedgroup,withinthemeaningofSection1504oftheCode.LILCOwilladvisethetrusteeofthedefinedbenefitplanofLILCOoftheconsequencesofowning,orpriortotheLIPAEffectiveTimeifthetransactionscontemplatedherebyaretobeconsummatedpursuanttoSECTION7.18{b)acquiring,anysharesofLILCOCommonStock.(o)AFFILIATETRANSACTIONS.ExceptassetforthinSection6.1(o)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,nopartyshaH,norshallanyppermitanyofitsSubsidiariesto,enterintoanymaterialagreementorarrangementwithanyoftheA-24 respectiveaffiliates(otherthanwholly-ownedsubsidiaries)ontermsmateriallylessfavorabletosuchpartythancouldbereasonablyexpectedtohavebeenobtainedwithanunaffiliatedthirdpartyonanarm'-lengthbasis.j(p)COOPERATION,NOTIFICATION.Eachpartyshall,andshallcauseitsSubsidiariesto,(i)conferonaregularandfrequentbasiswithoneormorerepresentativesoftheotherp'artytodiscuss,subjecttoapplicablelaw,materialoperationalmattersandthegeneralstatusofitsongoingoperations;(ii)promptlynotifytheotherpartyofanysignificantchangesinitsbusiness,properties,assets,condition(financialorother),resultsofoperationsorprospects;(iii)advisetheotherpartyofanychangeoreventwhichhashador,insofarasreasonablycanbeforeseen,isreasonablylikelytoresultin,inthecaseofBrooklynUnion,aBrooklynUnionMaterialAdverseEffector,inthecaseofLILCO,aLILCO'MaterialAdverseEffect;and(iv)promptlyprovidetheotherpartywithcopiesofallfilingsmadebysuchpartyoranyofitsSubsidiaries,withanystateorfederalcourt,administrativeagency,commissionorotherGovernmentalAuthorityinconnectionwiththisAgreementandthetransactionscontemplatedhereby.(q)RATEMATTERS.EachofBrooklynUnionandL'ILCOshall,andshallcauseitsSubsidiariesto,notify'heotherofanychangesinitsoritsSubsidiaries'atesorcharges(otherthanpass-throughfuelandgasratesorcharges),standardsofserviceoraccountingfromthoseineffectonthedatehereof,andnopartywillmakeanyfilingtocharigeitsratesonfilewiththeNewYorkStatePublicServiceCommission(the"PSC")thatwouldhaveamaterialadverseeffectonthebenefitsassociatedwiththebusinesscombinationprovidedforherein.(r)THIRD-PARTYCONSENTS.BrooklynUnionshall,andshallcauseitsSubsidiariesto,useallcommerciallyreasonableeffortstoobtainallBrooklynUnionRequiredConsents.BrooklynUnionshallpromptlynotifyLILCOofanyfailureorprospectivefailuretoobtainanysuchconsentsand,ifrequestedbyLILCO,shallprovidecopiesofallBrooklynUnionRequiredConsentsobtainedbyBrooklynUniontoLILCO.LILCOshall,andshallcauseitsSubsidiariesto,useallcommerciallyreasonableeffortstoobtainallLILCORequiredConsents.LILCOshallpromptlynotifyBrooklynUnionofanyfailureorprospectivefailuretoobtainanysuchconsentsand,ifrequestedbyBrooklynUnion,shallprovidecopiesofallLILCORequiredConsentsobtainedbyLILCOtoBrooklynUnion.(s)NOBREACH,ETC.Nopartyshall,norshallanypartypermitanyofitsSubsidiariesto,willfullytakeanyactionthatwouldorisreasonablylikelytoresultinamaterialbrcachofanyprovisionofthisAgreement,theBrooklynUnionStockOptionAgreement'ortheLILCOStockOptionAgreemcnt,asthecasemaybe,orinanyofitsrepresentationsandwananticssetforthinthisAgreement,theBrooklynUnionStockOptionAgreement,ortheLILCOStockOptionAgreement,asthecasemaybe,beinguntrueonandasoftheClosingDate..(t)TAX-EXEMPTSTATUS.Nopartyshall;norshallanypartypermitanySubsidiaryto,takeanyactiontha'twouldlikelyjeopardizethequalificationofBrooklynUnion'sorLILCO'soutstandingrevenuebondswhichqualifyonthedatehereofunderSection142(a)oftheCodeas"exemptfacilitybonds"orastax-exemptindustrialdevelopmentbondsunderSection103(b)(4)oftheInternalRevenueCodeof1954,asamended,priortotheTaxReformActtif1986.(u)COMPANYACTIONS.LILCOandBrooklynUnionshallcausetheCompanytotakeonlythose~'ctions,fromthedatehereofuntiltheEffectiveTime,thatarerequiredorcontemplatedbythisAgrecmcnttobesotakenbytheCompany,including,without'limitation,thedeclaration,filingorregistrationwith,ornoticeto'rauthorization,consentorapprovalof,anyGovernmentalAuthority,assetforthinSection4.4(b)oftheBrooklynUnionDisclosureSchedule,Section4.4(c)oftheBrooklynUnionDisclosureSchedule,Section,5.4(b)oftheLILCODisclosureScheduleandSection5.4(c)oftheLILCODisclosureSchcdulc.(v)TAXMAXI'ERS.ExceptassetforthinSection6.1(w)oftheBrooklynUnionDisclosureScheduleortheLILCODisclosureSchedule,respectively,nopartyshallmakeorrescindanymaterialexpressordeemedelectionrelatingtotaxes,settleorcompromiseanymaterialclaim,action,suit,litigation,A-25 proceeding,arbitration,investigation,auditorcontroversyrelatingtotaxes,-orchange.anyofitsmethodsreportingincomeordeductionsforfederalincometaxpurposesfromthoseemployedinthepreparationofitsfederalincometaxreturnforthetaxableyearendingSeptember30,1995inthecaseofBrooklynUnionandDecember31,1995inthecaseofLILCO,exceptasmayberequiredbyapplicablelaw.(w)DISCHARGEOFLIABILITIES.Nopartyshallpay,dischargeorsatisfyanymaterialclaims,liabilitiesorobligations(whetherabsolute,accrued,assertedorunasserted,contingentorotherwise),otherthanthe.payment,dischargeorsatisfaction,intheordinarycourseofbusinessconsistentwithpastpractice(whichincludesthepaymentoffinalandunappealablejudgments)orinaccordancewiththeirterms,ofliabilitiesreflectedorreservedagainstin,orcontemplatedby,themostrecentconsolidatedfinancialstatements(orthenotesthereto)ofsuchpartyincludedinsuchparty'sreportsfiledwiththeSEC,orincurredintheordinarycourseofbusinessconsistentwithpastpractice,andotherthanthepaymentbyBrooklynUnionorLILCOofcertaintransfertaxeswhichmayresultfromtheTransactionsunderNewYorklaw.(x)CONTRACTS.Nopartyshall,exceptintheordinarycourseofbusinessconsistentwithpastpractice,modify,amend,terminate,reneworfailtousereasonablebusinesseffortstorenewanymaterialcontractoragreementtowhichsuchpartyoranySubsidiaryofsuchpartyisapartyorwaive,releaseorassignanymaterialrightsorclaims.(y)INSURANCE.Eachpartyshall,andshallcauseitsSubsidiariesto,maintainwithfinanciallyresponsibleinsurancecompaniesinsuranceinsuchamountsandagainstsuchrisksandlossesasarecustomaryforcompaniesengagedintheelectricandgasutilityindustryandemployingmethodsofgeneratingelectricpowerandfuelsourcessimilartothosemethodsemployedandfuelsusedbysuchpartyoritsSubsidiaries.(z)PERMITS.Eachpartyshall,andshallcauseitsSubsidiariesto,usereasonableeffortstomaintainineffectallexistinggovernmentalpermitspursuantto'whichsuchpartyoritsSubsidiariesoperate.ARTICLEVIIADDITIONALAGREEMENTSSEciioN7.1ACCESSTOINFORMATION.Uponreasonablenotice,eachpartyshall,andshallcauseitsSubsidiariesto,affordtotheofficers,'irectors,employees,accountants,counsel,investmentbankers,financialadvisorsandotherrepresentativesoftheother(collectively,"REPRESENTATIVES")reasonableaccess,duringnormalbusinesshoursthroughouttheperiodpriortotheEffectiveTime,toallofitsproperties,books,contracts,commitmentsandrecords(including,butnotlimitedto,TaxReturns)and,duringsuchperiod,eachpartyshall,andshallcauseitsSubsidiariesto,furnishpromptlytotheother(i)accesstoeachreport,scheduleandotherdocumentfiledorreceivedbyitoranyofitsSubsidiariespursuanttotherequirementsoffederalorstatesecuritieslawsorfiledwithorsenttotheSEC,theFERC,theNRC,theDepartmentofJustice,theFederalTradeCommission,thePSCoranyotherfederalorstateregulatoryagencyorcommission,and(ii)accesstoallinformationconcerningthemselves,theirsubsidiaries,directors,officersandshareholdersandsuchothermattersasmaybereasonablyrequestedbytheotherpartyinconnectionwithanyfilings,applicationsorapprovalsrequiredorcontemplatedbythisAgreementorforanyotherreasonrelatedtothetransactionscontemplatedbythisAgreement.Eachpartyshall,andshallcause,itssubsidiariesandRepresentativesto,holdinstrictconfidencealldocumentsandinformationconcerningtheotherfurnishedtoitinconnectionwiththetransactionscontemplatedbythisAgreement(including,withoutlimitation,eachDisclosureSchedule)inaccordancewiththeConfidentialityAgreement,datedOctober24,1995,betweenBrooklyn.-UnionandLILCO,asitmaybeamendedfromtimetotime(the"CONFIDENTIALITYAGREEMENT").A-26 tSt!cnox7.2JOINTPROXYSTATEMENTANDREGISTRATIONSTATEMENT.(a)PREPARATIONANDFILING.ThepartieswillprepareandfilewiththeSECas,soori'asreasonablypracticableafterthedatehereoftheRegistrationStatementandtheProxyStatement(together,the"JOINTPROXY/REGISTRATIONSTATEMENT").ThepartiesheretoshalleachusereasonableeffortstocausetheRegistrationStatementtobedeclaredeffectiveundertheSecuritiesActaspromptlyaspracticableaftersuchfiling.EachpartyheretoshallalsotakesuchactionasmaybereasonablyrequiredtocausethesharesofCompanyCommonStockissuableinconnectionwiththeTransactionstoberegisteredortoobtain'anexemptionfromregistrationunderapplicablestate"bluesky"orsecuritieslaws;PROVIDED,HOWEVER,thatnopartyshallberequiredtoregisterorqualifyasaforeigncorporationortotakeotheractionwhichwouldsubjectittoserviceofprocessinanyjurisdiction'whereitwillnotbe,followingtheTransactions;sosubject.Eachbfthepartiesheretoshallfurnishallinformationconcerningitselfwhichis'requiredorcustomaryforinclusionintheJointProxy/RegistrationStatement.ThepartiesshallusereasonableeffortstocausethesharesofCompanyCommonStockissuableintheTransactionstobeapprovedforlistingon'heNYSEuponofficialnoticeofissuance.TheinformationprovidedbyanypartyheretoforuseintheJointProxy/RegistrationStatementshallbetrueandcorrectinallmaterialrespectswithoutomissionofanymaterialfactwhichisrequiredtomakesuchinfo'rmationnotfalseormisleading.Norepresentation,covenantoragreementismadebyanypartyheretowithrespecttoinformationsuppliedbyanyotherpartyforinclusionintheJointProxy/RegistrationStatement.(b)LETTEROFBROOKLYNUNION'SACCOUNTANTS.BrooklynUnionshallusebesteffortstocausetobedeliveredtoLILCOaletterofArthurAndersenLLP,datedadatewithintwobusinessdaysbeforethedateoftheJointProxy/RegistrationStatement,andaddressedtoLILCO,informandsubstancereasbnablysatisfactorytoLILCOandcustomaryinscopeandsubstancefor"coldcomfort"lettersdeliveredbyindependentpublicaccountantsinconnectionwithregistrationstatementsonFormS-4.(c)LETI'EROFLILCO'SACCOUNTANTS.LILCOshallusebesteffortstocausetobedeliveredtoBrooklynUnionaletterofErnst&YoungLLP,datedadatewithintwobusinessdaysbeforethedate"'oftheintProxy/RegistrationStatement,andaddressedtoBrooklynUnion,informand'ubstance'reasonablyatisfactorytoBrooklynUnionandcustomaryinscopeandsubstancefor"coldcomfort"lettersdeliveredbyindependentpublicaccountantsinconnectionwithregistrationstatementsonFormS-4.(d)FAIRNESSOPINIONS.ItshallbeaconditiontothemailingoftheJoint'roxy/RegistrationStatementtotheshareholdersofBrooklynUnionandLILCOthat(i)BrooklynUnionshall'havereceivedanopinionfromMerrillLynch,datedthedateoftheJointProxy/RegistrationStatement,totheeffectthat,asofthedatethereof,theOriginalRatioandtheLIPARatioarefairfromafinancialpointofviewtotheholdersofBrooklynUnionCommonStockand(ii)LILCOshallhavereceivedanopinionfromDillonRead,datedthedateoftheJointProxy/RegistrationStatement,totheeffectthat,asofthedatethereof,theOriginalRatioandtheLIPARatioarefairfromafinancialpointofviewtotheholdersofLILCOCommonStock.SEGTIQN7.3REGULATORYMATTERS.(a)HSRFILINGS.EachpartyheretoshallfileorcausetobefiledwiththeFederalTradeCommissioriandtheDepartmentofJusticeanynotificationsrequiredtobefiled'bytheirre'spective"ultimateparent"companiesundertheHart-Scott-RodinoAntitrustImprovementsActof1976,asamended(the"HSRACT"),andtherulesandregulationspromulgatedthereunderwithrespecttothetransactionscontemplatedhereby.Suchpartieswilluseallcommerciallyreasonableeffortstomakesuchfilingspromptlyandtorespondpromptlytoanyrequestsforadditionalinformationmadebyeitherofsuchagencies.(b)OTHERREGULATORYAPPROVALS.Eachpartyheretoshallcooperateanduseitsbesteffortstopromptlyprepareandfileallnecessarydocumentationandtoeffectallnecessaryapplications,notices,petitions,filingsandotherdocuments,andshalluseallcommerciallyreasonableeffortstoobtainallnecessarypermits,consents,approvalsandauthorizationsofallGovernmentalAuthoritiesnecessaryoradvisabletoconsummateetransactionscontemplatedbythisAgreement,including,withoutlimitation,theBrooklynUnionRequiredtatutoryApprovalsandtheLILCORequiredStatutoryApprovals.LILCOandBrooklynUnionshallcooperateA-27 ingoodfaithandconsultwitheachotheronallcomponentsof,significantstepstowardsthecompletionof,andsignificantamendmentsto,theapplicationstoobtaintheBrooklynUnionRequiredStatutoryApprovalsandtheLILCORequiredStatutoryApprovals,andwithrespecttomaterialfilings,communications,agreements,arrangementsorconsents,writtenororal,formalorinformal,relatingtoapplicationsforsuchApprovals.'ECrrox7.4SHAREHOLDERAPPROVAL.(a)APPROVALOFLILCOSHAREHOLDERS.SubjecttotheprovisionsofSECTION7.4(c)andSECTION7.4(d),LILCOshall,assoonasreasonablypracticableafterthedatehereof(i)takeallstepsnecessarytodulycall,givenoticeof,conveneandholdaspecialmeetingofitsshareholders(the"LILCOSPECIALMEETING")forthepurposeofsecuringtheLILCOShareholders'pproval,(ii)distributetoitsshareholderstheJointProxy/RegistrationStatementinaccordancewithapplicablefederalandstatelawandwithitsRestatedCertificateofIncorporationandby-laws,(iii)subjecttothefiduciarydutiesofitsBoardofDirectors,recommendtoitsshareholderstheadoptionofthisAgreement.andthetransactions,contemplatedherebyand(iv)cooperateandconsultwithBrooklynUnionwith.respecttoeachoftheforegoingmatters.(b)APPROVALOFBROOKLYNUNIONSHAREHOLDERS.SubjecttotheprovisionsofSECTION7.4(c)andSECTION7.4(d),BrooklynUnionshall,assoonasreasonablypracticableafterthedatehereof(i)takeallstepsnecessarytodulycall,givenoticeof,conveneandholdaspecialmeetingofitsshareholders(the"BROOKLYNUNIONSPECIALMEETING")forthepurposeofsecuringtheBrooklynUnionShareholders'pproval,(ii)distributetoitsshareholderstheJointProxy/RegistrationStatementinaccordancewithapplicablefederalandstate.lawandwithitsRestatedCertificateofIncorporationandby-laws,(iii)subjecttothefiduciarydutiesofitsBoard.ofDirectors,recommendtoitsshareholderstheadoptionofthisAgreementandthetransactionscontemplatedherebyand(iv)cooperateandconsultwithLILCOwithrespecttoeachoftheforegoingmatte@.(c)MEETING'DATE.TheLILCOSpecialMeetingforthepurposeofsecttringtheLILCOShareholders'pprovalandtheBrooklynUnionSpecialMeetingforthepurposeofsecuringtheBrooklynUnionShareholders'pprovalshallbeheldonsuchdatesasBrooklynUnionandLILCOshallmutuallydetermine,actingingoofaith.(d)FAIRNESSOPINIONSNOTWITHDRAWN.ItshallbeaconditiontotheobligationofBrooklynUniontoholdtheBrooklynUnionSpecialMeetingthattheopinionofMerrillLynch,referred,toinSECTION7.2(d),shallnothavebeenwithdrawn,anditshallbeaconditiontotheobligationofLILCOtoholdtheLILCOSpecialMeetingthattheopinionofDillonRead,referredtoinSECTION7.2(d),shallnot.havebeenwithdrawn.SEcFIQN7.5DIRECTORS'NDOFFICERS'NDEMNIFICATION.(a)INDEMNIFICATION.'otheextent,ifany,notprovidedbyanexistingrightofindemnificationorotheragreementorpolicy,fromandaftertheLILCOEffectiveTime,theCompanyshall,tothefullestextentpermittedbyapplicablelaw,indemnify,defendandholdharmlesseachpersonwhoisnow,orhasbeenatanytimepriortoDecember29,1996,orwhobecomespriortotheEffectiveTime,anofficer,directororemployeeofanyofthepartiesheretooranySubsidiarythereof(eachan"INDEMNIFIEDPARTY"andcollectively,the"INDEMNIFIEDPARTIES")against,(i)alllosses,expenses(includingreasonableattorneys'eesandexpenses),claims,damagesorliabilitiesor,subjecttotheprovisoofthenext.succeedingsentence,amountspaidinsettlement;-arisingoutofactionsoromissionsoccurringatorpriortotheEffectiveTime(andwhetherassertedorclaimedpriorto,atoraftertheEffectiveTime)thatare,inwholeorinpart,basedonorarisingoutofthefactthatsuchpersonisorwasadirector,officeroremployeeofsuchparty(the"INDEMNIFIEDLIABILITIES"),and(ii)allIndemnifiedLiabilitiestotheextenttheyarebasedonorariseoutoforpertaintothetransactionscontemplatedbythisAgreement.Intheeventofanysuchloss,expense,claim,damageor1iability(whetherornotarisingbeforetheEffectiveTime),(i)theCompanyshallpaythereasonablefeesandexpensesofcounselselectedbytheIndemnifiedParties,whichcounselshallbereasoriablysatisfactorytotheCompany,promptlyafterstatementsthereforarereceivedandotherwiseadvancetosuchIndemnifiedPartyuponrequereimbursementofdocumentedexpensesreasonablyincurred,ineithercasetotheextentnotprohibitedbythA-28 YBCLanduponreceiptofanyundertakingrequiredbyoftheNYBCL,(ii)theCompanywillcooperateinthedefenseofanysuchmatterand(iii)anydetertninationrequiredtobemadewithrespecttowhetheranIndemnifiedParty'sconductcomplieswiththestandardssetforthunderNewYorklawandtheRestatedCertificateofIncorporationor'By-lawsoftheCompanyshallbemadebyindependentcounselmutuallyacceptabletotheCompanyandtheIndemnifiedParty;.PROVIDED,HOWEVER,thattheCompanyshallnotbeliableforanysettlement,effectedwithoutitswrittenconsent,(whichconsentshallnotbeunreasonablywithheld).TheIndemnifiedPartiesasagroupmayretainonlyonelaw,firmwithrespectto,eachrelatedmatterexcepttotheextentthereisintheopinionofcounseltoanIndemnifiedParty,underapplicablestandards,ofprofessionalconduct,aconflictonanysignificantissuebetween.positionsofsuchIndemnifietlPartyandanyotherIndemnifiedPartyorIndemnifiedParties,(b)INSURANCE.ForaperiodofsixyearsaftertheEffectiveTime,"theCompanyshalleither(i)causetobemaintainedineffect,forthebenefitofthosepersonswhowerecoveredbythepoliciesofdirectors'ndofficers'iabilityinsurancemaintainedbyLILCOorBrooklynUnionatDecember29,1996andatanytimesubsequenttheretoandpriortotheEffectiveTime,themorefavorableofsuchpoliciesivithrespecttotheobligationsoftheCompanysetforthinthisSection7.5or(ii)obtainnewpoliciesofferingsuchcoverageatleastasfavorableasthetermsofthemorefavorableofsuchcurrentinsurancecoverage.(c)SUCCESSORS.IntheeventtheCompanyoranyofitssuccessorsorassigns(i)consolidateswithormergesiritoanyotherpersonandshallnotbethecontinuingorsurvivingcorpdrationorentityofsuchconsolidationorinergeror(ii)transfersallorsubstantiallyallofitspropertiesandassetstoanyperson,thenandineithersuchcase,properprovisionsshallbemadesothatthesuccessorsandassignsoftheCompanyshallassumetheoblig'ationssetforthinthisSECTION7.5.(d)SURVIVALOFINDEMNIFICATION.Tothefullestextentpermittedbylaw,fromandaftertheEffectiveTime,allrightstoindemnificationasofDecember29,1996infavoroftheemployees,agents,directorsandofficersofBrooklynUnion,LILCOandtheirrespectiveSubsidiarieswithrespecttotheiractivitiesassuchriortotheEffectiveTime,asprovidedintheirrespectivecertificatesofincorporationandby-lawsineffectoniedatethereof,orotherwiseineffectonDecember29,1996,shallsurvivetheTransactionsandshallcontinueinfullforceandeffectforaperiodofnotlessthansixyearsfromtheEffectiveTime.(e)BENE/IT.TheprovisionsofthisSECTION7.5areintendedtobeforthebenefitof,andshallbeenforceableby,eachIndemnifiedParty,hisorherheirsandhisorherrepresentatives.Si.:crtoN7.6DISCLOSURESCHEDULES.'nDecember=29,1996,(i)LILCOhasdeliveredtoBrooklynUnionaschedule(the"LILCODISCLOSURESCHEDULE"),accompaniedbyacertificatesignedbythechieffinancialofficerofLILCOstatingtheLILCODisclosureScheduleisbeingdeliveredpursuanttothisSECTION7.6(i)and(ii)BrooklynUnionhasdelivered'toLILCOaschedule(the"BROOKLYNUNIONDISCLOSURESCHEDULE"),accompaniedbyacertificatesignedbythechieffinancialofficerofBrooklynUnionstatingtheBrooklynUnionDisclosureScheduleisbeingdeliveredpursuanttothisSECTION7.6(ii).TheBrooklynUnionDisclosureScheduleandtheLILCODisclosureSchedulearecollectivelyreferredtohereinasthe"DISCLOSURESCHEDULES".TheDiscfosureSchedulesconstituteanintegralpartofthisAgreementandmodifytherespectiverepresentations,warranties,'covenantsoragreementsofthepartiesheretocontainedhereintotheextentthatsuchrepresentations,warra'nties,covenantsoragreementsexpresslyrefertotheDisclosure'chedules.AnythingtotheContrarycontainedherein'orintheDisclosureSchedulesnotwithstanding,anyandallstatements,representations,warrantiesordisclosuressetforthintheDisclosureSchedulesshallbedeemedtohavebeenmadeonand'asofDecember29,1996.'Secrtonr7.7PUBLICANNOUNCEMENTS,BrooklynUnionandLILCOwillcooperatewitheachotherinthedevelopmentanddistributionofallnewsreleasesandotherpublicinformationdisclosureswithrespecttothisAgreement,oranyofthetransactionscontemplatedherebyandshallnotissueanypublicannouncementorstatementwithrespectheretoor,theretothatisinconsistentwithanypublicannouncementorstatement,eviously,madewiththeconsentofthepartiesheretowithouttheconsentoftheotherparty(whichconsentallnotbeunreasonablywithheld),exceptasmayberequiredbylaw,inwhichcasethepartyrequiredtoissueA-29 theannouncementorstatementshallallowtheotlierpartytimetocommentonsuchannouncementorstatementpriortoitsissuance.SEcTIQN7.8RULE145AFFILIATES.Within30daysafterthedateofthisAgreement,BrooklynUnionshallidentifyinalettertoLILCO,an'dLILCOshall'identifyinalettertoBrooklynUnion,allpersonswhoare,andtosuchperson'sbestknowledgewhowillbeattheClosingDate,affiliatesofBrooklynUtlionandLILCO,respectively,assuchtermisusedinRule145undertheSecuritiesAct(orotherwiseunderapplicableSECaccountingreleaseswithrespecttopooling-of-interestsaccountingtreatment).EachofBrooklynUnionandLILCOshalluseallreasonableeffortstocausetheirrespectiveaffiliates(includinganypersonwhomaybedeemedtohavebecomeanaffiliateafterthedateoftheletterreferredtointhepriorsentence)todelivertotheCompanyonorpriortotheClosingDateawrittenagreementcustomaryfortransactionsofthisnaturethataretobeaccountedforasapoolingofinterestsandinformandsubstancereasonablysatisfactorytoBrooklynUnionandLILCO.Ifanypersonrefusestoprovidesuchawrittenagreement,theCompanyshall,inlieuofreceiptofsuchwrittenagreement,beentitledtoplaceappropriatelegendsonthecertificatesevidencingtheCompanyCommonStocktobereceivedbysuchpersonpursuanttothetermsofthisAgreement,andtoissueappropriatestocktransferinstructionstothetransferagentfortheCompanyCommonStock,totheeffectthatthesharesofCompanyCommonStockreceivedortobereceivedbysuchpersonpursuanttothetermsofthisAgreementmayonlybesold,transferredorotherwiseconveyed,andtheholderthereofmayonlyreducehisinterestinorrisksrelatingtosuchsharesofCompanyCommonStock,pursuanttoaneffectiveregistrationstatementundertheSecuritiesAct,incompliancewithRule145,asamendedfromtimetotime,orinatransactionwhich,intheopinionoflegalcounselsatisfactorytotheCompany,isexemptfromtheregistrationrequirementsoftheSecuritiesAct.TheforegoingrestrictionsonthetransferabilityofCompanyCommonStockshallapplytoallpurportedsales,transfersandotherconveyancesofthesharesofCompanyCommonStock,receivedortobereceivedbysuchpersonpursuanttothisAgreementandtoallpurportedreductionsintheinterestinorrisksrelatingtosuchsharesofCompanyCommonStock,whetherornotsuchpersonhasexchangedthecertificatespreviouslyevidencingsuchpersons'haresofBrooklynUnionCommonStockorLILCOCommonStock,asthecasemaybe,forcertificatesevidencingsharesofCompanyCommonStockintowhichsuchsharesweconverted.TheProxyStatementandtheRegistrationStatementshalldisclosetheprecedinginareasonablprominentmanner.St:.cnow7.9EMPLOYEEAGREEMENTS.SubjecttoSECTION7.10;SECTION7.14andSECTION7.15,theCompanyanditsSubsidiariesshallhonor,withoutmodification,allcontracts,agreements,collectivebargainingagreementsandcommitmentsofthepartiespriortoDecember29,1996whichapplytoanycurrentorformeremployeeorcurrentorformerdirectorofthepartieshereto;PROVIDED,HOWEVER,thatthisundertakingisnotintendedtopreventtheCompanyfromenforcingsuchcontracts,agreements,collectivebargainingagreementsandcommitmentsinaccordancewiththeirterms,including,withoutlimitation,anyreservedrighttoamend,modify,suspend,revokeorterminateanysuchcontract,agreement,collectivebargainingagreementorcommitment.SEGTIQN7.10EMPLOYEEBENEFITPLANS.SubjecttoSECTION6.1(i),eachoftheBrooklynUnionBenefitPlansandLILCOBenefitPlansineffectatDecember29,1996shallbemaintainedineffectwithrespecttotheemployeesorformeremployeesofBrooklynUnionandanyofitsSubsidiaries,ontheonehand,andofLILCOandanyofitsSubsidiaries,ontheotherhand,respectively,whoarecoveredbyanysuchbenefitplanimmediatelypriortotheClosingDate(the"AFFILIATEDEMPLOYEES")untiltheCompanyotherwisedeterminesaftertheEffectiveTime;PROVIDED,HOWEVER,thatnothinghereincontainedshalllimitanyreservedrightcontainedinanysuchBrooklynUnionBenefitPlanorLILCOBenefitPlantoamend,modify,suspend,revokeorterminateanysuchplan.Withoutlimitationoftheforegoing,eachparticipantofanysuchBrooklynUnionBenefitPlanorLILCOBenefitPlanshallreceivecreditforpurposesofeligibilitytoparticipate,vesting,benefitaccrualandeligibilitytoreceivebenefitsunderanybenefitplanoftheCompanyoranyofitssubsidiariesoraffiliatesforservicecreditedforthecorrespondingpurposeundersuchbenefitplan;PROVIDED,HOWEVER,thatsuchcreditingofserviceshallnotoperatetoduplicateanybenefittoanysuchparticipantorthefundingforanysuchbenefit.AnypersonhiredbytheCompanyoranyofitssubsidiariesaftertheClosin~DatewhowasnotemployedbyanypartyheretooritssubsidiariesimmediatelypriortotheClosingDatesha~A-30 beeligibletoparticipateinsuchbenefitplansmaintained,orcontributedto,bythesubsidiary,divisionoroperationbywhichsuchpersonisemployed,PROVIDEDthatsuch'personmeetstheeligibilityrequirementsoftheapplicableplan.SEcTIQN7.11STOCKPLANS.(a)LIL'COandBrooklynUnionshalltakeallactionrequiredtoterminatetheirrespectiveemployeestockoption,stockpurchaseandothersimilarstockplansconcurrentwiththeEffectiveTime.(b)AttheBrooklynUnionEffectiveTime,(i)eachshareofBrooklynUnionCommonStock(includingfractionalanduncertificatedshares)heldunderBrooklynUnion'sDividendReinvestmentandStockPurchasePlan(the"DIVIDENDREINVESTMENTPLAN")orBrooklynUnion'sEmployeeSavingsPlan,DiscountStockPurchasePlanforEmployeesandLong-TermPerformanceIncentiveCompensationPlan(eacha"BROOKLYNUNIONPLAN"andcollectivelythe"BROOKLYNUNIONPLANS")immediatelypriortotheBrooklynUnionEffectiveTimeshallbeautomaticallyexchangedforalikenumberofshares(includingfractionalanduncertificatedshares)ofCompanyCommonStock,whichsharesshallbeheldunderandpursuanttotheDividendReinvestmeritPlanorbeissuedundersuchBrooklynUnionPlan,asthecasemaybe,and(ii)eachunexpiredandunexercisedoptiontopurchasesharesofBrooklynUnionCommonStock("BROOKLYNUNIONOPTION")undertheLong-TermPerformanceIncentiveCompensationPlan(the"INCENTIVEPLAN"),whethervestedorunvested,willbeautomaticallyconvertedintoanoption(a"SUBSTITUTEOPTION")topurchaseanumberofsharesofCompanyCommonStockequaltothenumberofsharesofBrooklynUnionCommonStockthatcouldhavebeenpurchasedimmediatelypriortotheBrooklynUnionEffectiveTime(assumingfullvesting)undersuchBrooklynUnionOption,atapricepershareofCompanyCommonStockequaltothepershareoptionexercisepricespecifiedinsuchBrooklynUnionOption.InaccordancewithSection424(a)oftheCode,eachSubstituteOptionshallprovidetheoptionholderswithrightsandbenefitsthatarenolessandnomorefavorabletohimthanwereprovidedundertheBrooklynUnionOption.(c)AsoftheBrooklynUnionEffectiveTime,theCompanyshallsucceedtotheDividendReinvestmentPlanasineffectimmediatelypriortotheBrooklynUnionEffectiveTime,andtheDividendReinvestmentPlanshallbeappropriatelymodifiedtoprovidefortheissuanceordeliveryofCompanyCommonStockonandaftertheBrooklynUnionEffectiveTimepursuantthereto.(d)AsoftheBrooklynUnionEffectiveTime,theBrooklynUnionPlansshallbeappropriatelyamendedtoprovidefortheissuanceordeliveryofCompanyCommonStock,andtheCompanyshallagreetoissueordeliverCompanyCommonStockinconnectiontherewith.(e)AttheLILCOEffectiveTime,eachshareofLILCOCommonStock(includingfractionalanduncertificatedshares)heldunderL'ILCO'sDividendReinvestmentPlan(the"LILCODIVIDENDREINVESTMENTPLAN")orLILCO'sEmployeeStockPurchasePlan,Directors'tockUnitRetainerPlan,Officer'sLongTermIncentivePlanandAnnualStockIncentiveCompensationPlan(eacha"LILCOPLAN"andcollectivelythe"LILCOPLANS")immediatelypriortotheLILCOEffectiveTimeshallbeautomaticallyexchangedforsuchnumberofshares(includingfractionalanduncertificatedshares)ofCompanyCommonStockaseachshareofLILCOCommonStockisexchangedforpursuanttoSECTION2.1(c),whichsharesshallbeheldunderandpursuanttotheLILCODividendReinvestmentPlanorbeissuedundersuchLILCOPlan,asthecasemaybe.(f)AsoftheLILCOEffectiveTime,theCompanyshallsucceedtotheLILCODividendReinvestmentPlanasineffectimmediatelypriortotheLILCOEffectiveTime,andtheLILCODividendReinvestmentPlanshallbeappropriatelymodifiedtoprovidefortheissuanceordeliveryofCompanyCommonStockonandaftertheLILCOEffectiveTimepursuantthereto.(g)AsoftheLILCOEffectiveTime,theLILCOPlansshallbeappropriatelyamendedtoprovideforthe'ssuanceordeliveryofCompanyCommonStock,andtheCompanyshallagreetoissueordeliverCompanyommonStockinconnectiontherewith.
(h)IftheLIPAAgreementhaS'otbeenterminated,theninconnectionwiththeconsummationofthetransactionscontemplatedbySECTION2.1(orSECTIONS2.1(a)and7.18(b)iftheTransactionsare'tobeconsummatedpursuanttoSECTION7.18(b)),BrooklynUnionandLILCOshallcausetheCompanytoissueanappropriateamountofpreferredstockoftheCompanytosuchpersons(whichpersonsmayinclude,amongothers,employeebenefitplans,employees,officersanddirectorsofBrooklynUnion'orLILCO)anduponsuchtermssoastocausetheformationoftheCompanytobeatransactiontowhichSection,351oftheCodedoesnotapply.SEcTIQN7.12NOSOLICITATIONS.Eachpartyheretoshallnot,andeachsuchpartyshallcauseitsSubsidiariesnotto,permitanyofitsRepresentativesto,andshalluseitsbesteffortstocausesuchpersonsnotto,directlyorindirectlyinitiate,solicitorencourage,ortakeanyactiontofacilitatethemakingof,,anyofferorproposalwhichconstitutesorisreasonablylikelytoleadto,anyBusinessCombinationProposal(asdefinedbelow),or,intheeventofanunsolicitedBusinessCombinationProposal,excepttotheextentrequiredbytheirfiduciarydutiesunderapplicablelawifsoadvisedinawrittenopinionofoutsidecounsel,engageinnegotiationsorprovideanyinformationordatatoanypersonrelatingtoanyBusinessCombinationProposal.Eachpartyheretoshallnotifytheotherpartyorallyandinwritingofanysuchinquiries,offersorproposals(including,withoutlimitation,thetermsandconditionsofanysuchproposalandtheidentityoftheperson'makingit),within24hoursofthereceiptthereof,shallkeeptheotherpartyinformedofth'estatusanddetailsofanysuchinquiry,offerorproposal,andshallgivetheotherparty'ivedays'dv'ancenoticeofanyagreementtobeenteredintowithoranyinformationtobesuppliedtoanypersonmakingsuchinquiry,offerorproposal.Eachpartyheretoshallimmediatelyceaseandcausetobeterminatedallexistingdiscussionsandnegotiations,'ifany,withanypartiesconductedheretoforewithrespecttoanyBusinessCombinationPyoposat.AsusedinthisSECTION7.12,"BUSINESSCOMBINATIONPROPOSAL"shallmeananytenderorexchangeoffer,proposalforamerger,consolidationorotherbusinesscombinationinvolvinganypartytothisAgreementoranyofitsmaterialsubsidiaries,oranyproposaloroffer(ineachcase,whetherornotinwritingandwhetherornotdeliveredtothestockholdersofapartygenerally)toacquireinanymanner,directlyorindirectly,asubstantialequityinterestinorasubstantialportionoftheassetsofanypartytothisAgreementoranyofitsmaterialsubsidiaries,otherthapursuanttothetransactionscontemplatedbythisAgreementandbytheLIPAAgreement,Fromthedatehereountiltheterminationorconsummationofthetransactionscontemplatedbythisagreement,neitherpartyshallengageinanynegotiationsormaterialdiscussionswiththeLongIslandPowerAuthority("LIPA")oritsrepresentativesoragentswithoutpriornotificationtoorthepresenceoftheotherpartyhereto,andwillnotprovideanyinformationordatatoLIPAwithoutprovidingacopythereoftothe.otherpartyhereto..Nothingcontainedhereinshallprohibitapartyfromtakinganddisclosing"toitsstockholdersapositioncontemplatedbyRule14e-2(a)undertheExchangeActwithrespecttoaBusinessCombinationProposalbymeansofatenderoffer.Srcnow7.13COMPANYBOARDOFDIRECTORS.ThenumberofdirectorscomprisingthcfullBoardofDirectorsoftheCompanyattheEffectiveTimeshallbe15persons,sixofwhomshallbedesignatedbyBrooklynUnionprior,totheEffectiveTime,sixofwhomshallbedesignatedbyLILCOpriortotheEffectiveTimeandthreeofwhomshallbedesignatedbyacommitteeconsistingoftwocurrentBrooklynUniondirectorsandtwocurrentLILCOdirectors.IISEGTIQN7.14SENIOREXECUTIVES.Dr.WilliamJ.CatacosinosshallbetheChairmanoftheBoardofDirectors,ChairmanoftheExecutiveCommitteeandChiefExecutiveOfficeroftheCompanycommencingattheEffectiveTime.AtthefirstanniversaryoftheEffectiveTime,Dr.CatacosinosshallceasetobetheChiefExecutiveOfficer,shallcontinuetobeChairmanoftheBoardandChairmanoftheExecutiveCommitteeandshallbecomeaconsultantoftheCompany.Mr.RobertB.CatellshallbethePresidentandChiefOperatingOfficeroftheCompanycommencingattheEffectiveTimeandshallsucceedDr.CatacosinosasChiefExecutiveOfficeroftheCompanycommencingonsuchfirstanniversary.ThearrangementstocausesuchelectionstotakeplaceatthefirstanniversaryoftheEffectiveTimecontemplatedbytheprecedingsentencemaybealteredonlybyavote,followingtheEffectiveTime,oftwo-thirdsoftheentireBoardofDirectorsoftheCompany.ErichofthepartiesheretoshalltakesuchactionasshallreasonablybedeemedbyanyofthemtobeadvisableinordertgiveeffecttotheprovisionsofthisSection7.14.A-32
\SEGTIQN7.15EXPENSES.SubjecttoSECTION9.3,'allcostsandexpensesincurredinconnectionwiththisAgreementandthetransactionscontemplatedherebyshallbepaidbythepartyincurringsuchexpenses,exceptthatthoseexpensesincurredinconnectionwithprintingtheJointProxy/RegistrationStatement,aswellasthefilingfeerelatingtheretoandanyexpensesincurredundertheHSRAct,shallbesharedequallybyBrooklynUnionandLILCO.SEGTIQN7.16FURTHERASSURANCES.Eachpartywill,andwillcauseitsSubsidiariesto,executesuchfurtherdocumentsandinstrumentsandtakesuchfurtheractionsasmayreasonablyberequestedbyanyotherpartyinordertoconsummatetheTransactionsinaccordancewiththetermsheieof.'EGTIQN7.17POST-EXCHANGEOPERATIONS.SubjecttothetransactionscontemplatedbytheLIPAAgreement,followingtheEffectiveTime,BrooklynUnion,ontheonehand,andLILCO,ontheotherhand,shallcontinuetheirseparatecorporateexistences,operatingunderthenamesof"THEBROOKLYNUNIONGASCOMPANY"and"LONGISLANDLIGHTINGCOMPANY",respectively,untilsuchtimeasisotherwisedeterminedbytheBoardofDirectorsoftheCompany.ThenameoftheCompanyshallbe"BL",orsuchothernameasmaybeagreedbyBrooklynUnionandLILCOpriortotheClosing(whichshallnotbethenameof,oranamesubstantiallysimilarto,BrooklynUnionorLILCO).Thecertificateofincorporationandby-lawsoftheCompanyshallbeamendedpriortotheEffectiveTimeinamannerreasonablyacceptabletoBrooklynUnionandLILCO.SEGTIQN7.18OTHERTRANSACTIONS1%(a)Thepartiesheretoherebyconsenttotheexecutionanddeliveryof,andperformanceofthetransactionscontemplatedby,theLIPAAgreementandtheKeySpanExchangeAgreement,andwaiveallbreachesofrepresentations,warranties,covenantsandconditionscontainedhereinarisingtherefrom.(b)IntheeventthatalloftheconditionstoeachofthisAgreementandtheLIPAAgreementhavebeensatisfiedorwaivedandeachofBrooklynUnion,LILCOandLIPAhasindicatedtotheotherpartiesthatitiseady,willingandabletoconsummatethetransactionscontemplatedbythisAgreementandtheLIPAAgreement,thentheShareExchangeshallnotbeconsummatedandtheothertransactionscontemplatedherebyandtherebyshallbeconsummatedmthefol/owingmannerandorder.'i)thetransferbyLILCOoftheTransferredAssets(asdefinedintheLIPAAgreement)tosuchsubsidiariesoftheCompanyasBrooklynUnionandLILCOshalldirectinexchangefortheDesignatedNumber(ashereinafterdefined)ofsharesofCompanyCommonStockandupto$75millionfaceamountofpreferredstockoftheCompany("CompanyPreferredStock")ascontemplatedbytheLIPAAgreementThe"DesignatedNumber"shallbethenumberofsharesofCompanyCommonStockrepresentingthenetfairmarketvalueoftheTransferredAssets,asshallbedeterminedingoodfaithbyBrooklynUnionandLILCO,lesssuchfaceamountofCompanyPreferredStock;(ii)themergerofLIPAAcquisitionCorp.withandintoLILCOandtherelatedtransactionscontemplatedbytheLIPAAgreement(includingallschedulesandexhibitsthereto)tooccuronorpriortotheeffectivetimeofsuchmerger(the"LIPAEFFECTIVETIME")shallbeorshallhavebeenconsummated,and,attheLIPAEffectiveTime,theCashPurchasePrice(asdefinedintheLIPAAgreement)shallbepaidtotheExchangeAgent(asdefinedundertheLIPAAgreement)asagentfortheholdersofLILCOCommonStocktosubscribeforandpurchaseanumberofsharesofCompanyCommonStock,whichnumberofshareswhenaddedtotheDesignatedNumbershallrepresentthenumberofsharesofLILCOCommonStockissuedandoutstandingimmediatelypriortotheLILCOEffec'tiveTime,otherthanDissentingShares,multipliedbythe'LIPARatio;and'(iii)promptlythereafter,theMergershallbeconsummated.(c)InconnectionwiththeLIPAAgreement,LILCOandBrooklyriUnioncontemplatetheformationofaimitedpartnershipforthepurposeofpurchasinginterestratehedgecontracts,tobefundedthroughcapitalontributionsofupto$30millionbyeachofthem(theformationofsuchlimitedpartnei;shipandthepurchaseA-33 ofsuch.contractsbeingreferredtohereinasthe"HEDGEARRANGEMENTS").ThepartiesherebyconsenttotheHedgeArrangementsandwaiveallbreachesofrepresentations,warranties,covenantsandconditionsarisingtherefrom.I(d)Notwithstandinganyprovisionhereintothecontrary,LILCOshallnotmodify,amendorterminatetheLIPAAgreement.(onceandasithasbeenenteredintobythepartiesthereto),andshallnotprovideanyconsent,waiverorreleasethereunderwithoutthepriorwrittenconsentofBrooklynUnion.SECI'IQN7.19EMPLOYMENTAGREEMENT.(a)TheCompanyshallenterintoanemploymentagreementwithMr.CatelleffectiveasoftheEffectiveTimeproviding'forhimtoassumethepositionsdescribedinSection7.14atthetimesspecifiedtherein,forhimtocontinuetoserveasChiefExecutiveOfficerforafouryearperiodcommencingonthefirstanniversaryoftheEffectiveTime,'orhimtoreceivecompensation(includingincentivecompensationrelatingtorealizingthesynergiescontemplatedtoberealizedfromtheTransactions)ontermsmutuallyagreedtoandinanyeventinanamountnotlessthanwhathereceivesasofDecember29,1996aswellasreasonableincreases,andotherwisecontainingtermsandconditionscomparabletoandnolessfavorablethanthosecustomarilyapplicabletoemploymentagreementsfor'chiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.(b)TheCompanyshallenterintoanemploymentagreementwithDr.CatacosinoseffectiveasoftheEffectiveTimeprovidingforhimtoassumethepositionsdescribedinSection7.14atthetimesspecifiedtherein,forhimtoserveasaconsultanttotheCompanyforafiveyearperiodcommencingafterheceasesbeingChiefExecutiveOfficer,forhimtoreceivecompensation(includingincentivecompensationofthekinddescribedinSection7.19(a))ontermsmutuallyagreedtoandinanyeventinanamountnotlessthanwhathereceivesasofDecember29,1996aswellasreasonableincreases,andotherwisecontainingtermsandconditionscomparabletoandnoless,favorablethanthosecustomarilyapplicabletoemploymentagreementsforchiefexecutiveofficersofsimilarlysizedcompaniesintheenergyandutilitybusinesses.IfSECTION7.20HOLDINGCOMPANY.PriortotheLILCOEffectiveTime,orifthetransactionscontemplatedherebyaretobeconsummatedpursuanttoSection7.18(b),theLIPAEffectiveTime,LILCOandBrooklynUnionshallcausetheCompanytobeformedasaNewYorkcorporationforthepurposeofconsummatingthetransactionscontemplatedhereby,whichcorporationshallbe66%ownedbyLILCOand34%ownedbgBrooklynUnionimmediately'riortotheLILCOEffectiveTime.ARTICLEVIIICONDITIONSSECTION8.1CONDITIONSTOEACHPARTY'SOBLIGATIONTOEFFECTTHETRANSACTIONS.TherespectiveobligationsofthepartiestoeffecttheTransactionsshallbesubjecttothe'satisfactiononorpriortotheClosingDateofthefollowingconditions,except,totheextentpermittedbyapplicablelaw,'thatsuchconditionsmaybewaivedinwritingpursuanttoSECTION9.5bythejointactionofthepartiesh'ereto:(a)SHAREHOLDERAPPROVALS.TheLILCOShareholders'pprovalandtheBrooklynUnionShareholders'pprovalshallhavebeenobtained.(b)NOINJUNCTION.NotemporaryrestrainingorderorpreliminaryorpermanentinjunctionorotherorderbyanyfederalorstatecourtpreventingconsummationoftheTransactionsshallhavebeenissuedandbecontinuingineffect,andtheTransactionsandtheothertransactionscontemplatedherebyshallnothavebeenprohibitedunderanyapplicablefederalorstatelaworregulation.(c)REGISTRATIONSTATEMENT.TheRegistrationStatementshallhavebecomeeffectiveinaccordancewiththeprovisionsoftheSecuritiesAct,andnostopordersuspendingsucheffectivenessshalhavebeenissuedandremainineffect.A-34 (d)LISTINGOFSHARES.ThesharesofCompanyCommonStockissuableintheTransactionspursuanttoARTICLEII(includingsharesissuableunderoptions)shallhavebeenapprovedforlistingontheNYSEuponofficialnoticeofissuance.(e)STATUTORYAPPROVALS.TheBrooklynUnionRequiredStatutoryApprovalsandtheLILCORequiredStatutoryApprovalsshallhavebeenobtainedatorpriortotheBrooklynUnionEffectiveTimeandtheLILCOEffectiveTime,suchapprovalsshallhavebecomeFinalOrders(asdefinedbelow)andsuchFinalOrdersshallnotimposetermsorconditionswhich,intheaggregate,'ouldhave,orinsofaras,reasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financial,conditionorresultsofoperationsoftheCompanyanditsprospectivesubsidiariestakenasawholeorwhichwouldbemateriallyinconsistentwiththeagreements,ofthepartiescontainedherein.IfthetransactionscontemplatedbytheLIPAAgreementwillnotbeconsummatedcontemporaneouslywiththeconsummationofthetransactionscontemplatedhereby,theFinalOrderrelatingtotheapprovalofthetransactionscontemplatedherebytobereceivedfromthePSCshallincludethePSC'sapproval,withinthestatutoryauthorityofthePSC,ofratespermittedtobechargedbytheCompanyanditssubsidiariestotheircustomerswhichwillbeincorporatedinalongtermrateagreementtheeffectofwhichcouldnotreasonablybeexpectedtohaveamaterialadverseeffectonthebusiness,assets,financialcondition,resultsofoperations'orpros'pectsoftheCompanyanditssubsidiariestakenasawhole.Forpurposesofthisprovision,theprospectsoftheCompanyanditssubsidiariesshallmeanthecombinationoftheresultsanticipatedbytheregulatedearningsforecastsofBrooklynUnionprovidedtoLILCOundercoverofamemoranduindatedDecember29,1996,andtheresultsanticipatedbytheregulatedearningsforecastsofLILCOprovidedtoBrooklynUnionundercoverofameniorandumdated'ecember29,1996.A"FINALORDER"meansactionbytherelevantregulatoryauthoritywhichhasnotbeenreversed,stayed,enjoined,setaside',annulledorsuspended,withrespecttowhichanywaitingperiodprescribedbylawbeforethetransactionscontemplatedherebymaybeconsummatedhasexpired,andastowhichall'conditionstotheconsummationofsuchtransactionsprescribedbylaw,regulationororderhavebeensatisfied.e(f)POOLING.UnlesstheLIPATransactionhasbeenconsummated,orwillbeconsummatedcontemporaneouslywiththeTransactions,eachofBrooklynUnionandL'ILCOshallhavereceivedaletter'fitsindependentpublicaccountants,datedtheClosingDate,'informandsubstancereasonablysatisfactory,ineachcase,toBrooklynUnionandLILCO,statingthatthetransactionseffectedpursuanttothisAgreementwillqualifyasapoolingofintereststransactionunderGAAP,,(g)PREFERREDSTOCK.Unless-theLIPAAgreementhasbeenterminated,theCompanyshallhaveissuedsharesofpreferredstockoftheCompanyassetforthinSECTIONS7.11(h).(h)TAXOPINION.LILCOshallhavereceivedanopinionofHuntonAWilliamssatisfactoryinformandsubstancetoLILCO,datedasoftlieClosingDate,totheeffectthattheShareExchangewillnotbetaxabletonon-dissentingholdersofLILCOCommonStockand(exceptwithrespecttothereceiptofcashinlieuoffractionalshares)willsatisfytherequirementsofSection351oftheCode;PROVIDED,HOWEVER,thatthisconditionwillnotberequiredtobesatisfiedunlesstheLIPAAgreementhasbeenterminated.SECfION8.2CONDITIONSTOOBLIGATIONOELILCOTOEFFECTTHETRANSACTIONS.TheobligationofLILCOtoeffecttheTransactionsshallbefurthersubjecttothesatisfaction,onorpriortotheClosingDate,ofthefollowingconditions,exceptasmaybewaivedbyLILCOinwritingpursuanttoSECTION9.5:(a)PERFORMANCEOFOBLIGATIONSOFBROOkLYNUNION.BrooklynUnion(and/oritsappropriateSubsidiaries)shallhaveperformeditsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)andshallhaveperformedinallmaterialrespectsitsotheragreementsandcovenantscontainedinorcontemplatedbythisAgreementandtheBrooklynUnionStock,OptionAgreementrequiredtobeperformedbyitatorpriortotheBrooklynUnionEffectiveTime.(b)REPRESENTATIONSANDWARRANTIES,Therepresentationsand=warrantiesofBrooklynUnionsetforthinthisAgreementandtheBrooklynUnionStockOptionAgreement'shallbetrueandcorrectA-35 (i)onandasofDecember29,1996and(ii)onandasoftheClosingDateCiththesameeffectasthouglsuchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonlyasofaspecificdateortimeotherthanDecember29,1996ortheClosingDatewhichneedonlybetrueandcorrectasofsuchdateortime)exceptineachofcases(i)and(ii)forsuchfailuresofrepresentationsorwarrantiestobetrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtheiein)which,individuallyorintheaggregate,wouldnotbereasonablylikelytoresultinaBrooklynUnionMaterialAdverseXffect.(c)CLOSINGCERTIFICATES.LILCOshallhavereceivedacertificatesignedonbehalfofBrooklynUnionbythechieffinancia1officerofBrooklynUnion,datedtheClosingDate,totheeffectthat,'tothebestofsuchofficer's'knowledge,theconditionssetforthinSECTION8.2(a)andSECTION8.2(b)'havebeensatisfied.'I(d)BROOKLYNUNIONMATERIALADVERSEEFFECT.NoBrooklynUnionMaterialAdverseEffectshallhaveoccurredandthereshallexistnofactorcircumstancewhichisreasonablylikelytohaveaBrooklynUnionMaterialAdverseEffect.(e)BROOKLYNUNIONREQUIREDCONSENTS.TheBrooklynUmonRequiredConsentsshallhavebeenobtained,exceptforthoseconsentsthefailureofwhichtoobtainwouldhaveaBrooklynUnionMaterialAdverseEffect.Secrtox8.3CONDITIONSTOOBLIGATIONOFBROOKLYNUNIONTOEFFECTTHETRANSACTIONS.TheobligationofBrooklynUniontoeffecttheTransactionsshallbefurthersubjecttothesatisfaction,onorpriortotheClosingDate,ofthefollowingconditions,exceptasmaybewaivedbyBrooklynUnioninwritingpursuanttoSECTION9.5:,(a)PERFORMANCEOFOBLIGATIONSOFLILCO.LILCO(and/oritsappropriateSubsidiaries)shallhaveperformeditsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)andshallhavperformedinallmaterialrespectsitsotheragreementsandcovenantscontainedinorcontemplatedbythAgreementandtheLILCOStockOptionAgreementrequiredtobeperformedatorpriortotheLILCEffectiveTjme.I.(b)REPRESENTATIONSANDWARRANTIES.The'representationsandwarrantiesofLILCOsetforthinthisAgreementandtheLILCOStockOptionAgreementshallbetrueandcorrect(i)onandasofDecember29,1996and(ii)onandasoftheClosingDatewiththesameeffectasthough=suchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonlyasofaspecificdateortimeotherthanDecember29,1996ortheClosingDatewhichneedonlybetrueandcorrectisofsuchdateortime)exceptineachofcases(i)and(ii)forsuchfailuresofrepresentationsorwarrantiestobetrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtherein)which,individuallyorintheaggregate,wouldnotbereasonablylikelytoresultinaLILCOMaterialAdverseEffect.(c)CLOSINGCERTIFICATES.BrooklynUnionshallhavereceivedacertificatesignedonbehalfofLILCObythechieffinancialofficerofLILCO,datedtheClosingDate,totheeffectthat,tothebestofsuchofficer'sknowledge,theconditionssetforthinSECTION8.3(a)andSECTION8.3(b)havebeensatisfied.(d)LILCOMATERIALADVERSEEFFECT.NoLILCOMaterialAdverseEffectshallhaveoccurredandthereshallexistnofactorcircumstancewhichisreasonablylikelytohaveaLILCOMaterialAdverseEffect.(e)TAXOPINION.BrooklynUnionshallhavereceivedanopinionofWachtell,Lipton,Rosen&Katzsatisfactoryinform.andsubstancetoBrooklynUnion,datedasoftheClosingDate,whichopinionmaybebasedonappropriaterepresentationsofBrooklynUnion,KeySpan'andtheCompany,totheeffethattheMergerwillqualifyasareorganizationpursuanttoSection368oftheCode.A-36 0(f)LILCOREQUIREDCONSENTS.TheL'ILCORequiredConsentsshallhavebeenobtained,exceptforthosethefailureofwhichtoobtainwouldhaveaLILCOMaterialAdverseEffect.ARTICLEIXTERMINATION)AMENDMENTANDWAIVERSEcTioN9.1TERMINATION.ThisAgreementmaybeterminatedatanytimepriortotheClosingDate,whetherbeforeorafterapprovalbytheshareholdersoftherespectivepartiesheretocontemplatedbythisAgreement:(a)bymutualwrittenconsentoftheBoardsofDirectorsofBrooklynUnionandLILCO;(b)byanypartyhereto,bywrittennoticetotheotherparties,iftheEffectiveTimeshallnothaveoccurredonorbeforeAugust31,1998(the"INITIALTERMINATIONDATE");PROVIDED,HOWEVER,thattherighttoterminatetheAgreementunderthisSECTION9.1(b)shallnotbeavailabletoanypartywhosefailuretofulfillanyobligationunderthisAgreementhasbeenthecauseof,orresultedin,thefailureoftheEffectiveTimetooccuronorbeforethisdate;andPROVIDED,FURTHER,thatifontheInitialTerminationDatetheconditionstotheClosingsetforthinSECTIONS8.1(e),8.2(e)and/or8.3(f)shallnothavebeenfulfilledbutallotherconditionstotheClosingshallbefulfilledorshallbecapableofbeingfulfilled,thentheInitialTerminationDateshallbeextendedtoApril28,1999;andPROVIDED,FURTHER,thatLILCOshallnothavetherighttoterm'matethisAgreementpursuanttothisSection9.1(b)iftheLIPAAgreementhasnotbeenterminated;(c)byanypartyhereto,bywrittennoticetotheotherparties,iftheLILCOShareholders'pprovalshallnothavebeenobtainedatadulyheldLILCOSpecialMeeting,includinganyadjoummentsthereof,ortheBrooklynUnionShareholders'pprovalshallnot,havebeenobtainedatadulyheldBrooklynUnionSpecialMeeting,includinganyadjournmentsthereof;(d)byanypartyhereto,ifanystateorfederallaw,order,ruleorregulationisadoptedorissued,whichhastheeffect,assupportedbythewrittenopinionofoutsidecounselacceptabletothepartieshereto,ofprohibitingtheTransactions,orbyanypartyheretoifanycourtof.competentjurisdictionintheUnitedStatesoranyStateshallhaveissuedanorder,judgmentordecreepermanentlyrestraining,enjoiningorotherwiseprohibitingtheTransactions,andsuchorder,judgmentordecreeshallhavebecomefinalandnonappealable;(e)byLILCO,'upontwodays'riornoticetoBrooklynUnion,if,asaresultofatenderofferoranywrittenofferorproposalwithrespecttoamerger,saleofamaterialportion'ofitsassetsorotherbusinesscombination(each,a"BUSINESSCOMBINATION")byapartyotherthanBrooklynUnionoranyofitsaffiliatesorLIPAoi'nyofitsaffiliates,theBoardofDirectorsofLII.COdeterminesingoodfaiththattheir'iduciaryobligationsunderapplicablelawrequirethatsuchtenderofferorotherwrittenofferorproposalbeaccepted;PROVIDED;HOWEVER,that(i)theBoardofDire'ctorsofLILCOshallhavebeenadvisedinawrittenopinionofoutsidecounselthatnotwithstandingabindingcommitmenttoconsummateanagreementofthenature'ofthisAgreemententeredintointh'eproperexerciseoftheirapplicablefiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbyBrooklynUnioninnegotiationsenteredintopursuanttoCLAUSE(ii)below,suchfiduciarydutieswouldalsorequirethedirectorstoreconsidersuchcommitmentasaresultofsuchtenderofferorotherwrittenofferorproposal;and(ii)priortoanysuchtermination,LILCOshall,andshallcauseitsrespectivefinancialandlegaladvisorsto,negotiatewithBrooklynUniontomakesuchadjustmentsinthetermsandconditionsofthisAgreementaswouldenableLILCOtoproceedwiththetransactionscontemplatedhereinonsuchadjustedterms;(f)byBrooklynUnion,upontwodays'riornoticetoLILCO,if,asaresultofatenderofferbyapartyotherthanLILCOoranyofitsaffiliatesoranywrittenofferorproposalwithrespecttoaBusinessCombinationbyapartyotherthanLILCOoranyofitsaffiliates,theBoardof'DirectorsofBrooklynUniondeterminesingoodfaith,that.theirfiduciaryobligationsunderapplicablelawrequirethatsuchtenderofferA-37 orotherwrittenofferorproposalbeaccepted;PROVIDED,HOWEVER,that(i)theBoardofDirectorsoBrooklynUnionshallhavebeen'advised'inawrittenopinionof'outsidecounselthatnotwithstandingabindingcommitmenttoconsummateanagreementofthenatureofthisAgreemententeredintointheproperexerciseoftheirapplicablefiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbyLILCOinnegotiationsenteredintopursuanttoclause(ii)below,suchfiduciarydutieswouldalsorequirethedirectorstoreconsidersuchcommitmentasaresult'fsuchtenderofferorotherwrittenofferorproposal;and(ii)priortoanysuchtermination,BrooklynUnion'shall,andshallcauseitsrespectivefinancialandlegaladvisorsto,negotiatewithLILCOtomakesuchadjustmentsinthetermsandconditionsofthisAgreementaswouldenableBrooklynUniontoproceedwiththetransactionscontemplatedhereinonsuchadjustedterms;(g)byBrooklynUnion,bywrittennoticetoLILCO,if(i)thereexistbreachesoftherepresentationsandwarrantiesofLILCOandBLmadehereinasofDecember29,1996whichbreaches,individuallyorintheaggregate,wouldor,wouldbereasonablylikelytoresultinaLILCOMaterialAdverseEffect,andsuchbreachesshallnothavebeenremediedwithin20daysafterreceiptbyLILCOofnoticeinwritingfromBrooklynUnion,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)LILCO(and/oritsappropriatesubsidiaries)shallnothaveperformedandcompliedwithitsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)orshallhavefailedtoperformandcomplywith,inallmaterialrespects,itsotheragreementsandcovenantshereunderorundertheLILCOStockOptionAgreementandsuchfailuretoperformorcomplyshallnothavebeenremediedwithin20daysafterreceiptbyLILCOofnoticeinwritingfromBrooklynUnion,specifyingthe.natureofsuchfailureandrequestingthatitberemedied;or(iii)theBoardofDirectorsofLILCOoranycommitteethereof(A)shallwithdrawormodifyinanymanneradversetoBrooklynUnionitsapprovalorrecommendationofthisAgreementortheTransactions,(B)shallfailtoreaffirmsuchapprovalorrecommendationuponBrooklynUnion'srequest,(C)shallapproveorrecommendanyacquisitionofLILCOoramaterialportionofitsassetsoranytenderofferforsharesofcapitalstockofLILCO,ineachc&e,byaparty.otherthanBrooklynUnionoranyofitsaffiliatesandotherthantheLIPAAgreement,asthesamemaybeamendedfromtimetotimewiththeconsentofBrooklynUnion,andthetransactionscontemplatedtherebyor(D)shallresolvetotakanyoftheactionsspecifiedinCLAUSE(A),(B)or(C);(h)byLILCO,bywrittennoticetoBrooklynUnion,if(i)thereexistmaterialbreachesoftherepresentationsandwarrantiesofBrooklynUnionmadehereinasofDecember29,1996whichbreaches,individuallyorintheagg'regate,wouldorwouldbereasonablylikelytoresultinaBrooklynUnionMaterialAdverseEffect,andsuchbreachesshallnothavebeenremediedwithin20daysafterreceiptbyBrooklynUnionofnoticeinwritingfromLILCO,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)BrooklynUnion(and/oritsappropriatesubsidiaries)shallnothaveperformedandcompliedwithitsagreementsandcovenantscontainedinSECTIONS6.1(b)and6.1(c)orshallhavefailedtoperformandcomplywith,inallmaterialrespects,itsotheragreementsandcovenantshereunderorundertheBrooklynUnionStockOptionAgreement,andsuchfailuretoperformorcoliiplyshalliiothavebeenremediedwithin20daysafterreceiptbyBrooklynUnionofnoticeinwritingfromLILCO,specifyingthenatureofsuchfailureandrequestingthatitberemedied;or,(iii)theBoardofDirectorsofBrooklynUnionoranycommittee:thereof(A)shallwithdraw,ormodifyinanymanneradversetoLILCOitsapprovalorrecommendationofthisAgreementorthe.Transactions,(B),shallfailtoreaffirmsuchapprovalorrecommendationuponLILCO'srequest,(C)shallapproveorrecommend=anyacquisitionofBrooklynUnionoramaterialportionofitsassetsoranytenderofferforthesharesofcapitalstockofBrooklynUnion,ineachcasebyapartyotherthanLILCOoranyofits.affiliatesor(D)shallresolvetotakeanyoftheactionsspecifiedin,CLAUSE(A),(B)or(C);or(i)byeitherparty,bywrittennoticetotheotherparty,ifanyoftheconditionsofeitherparty'obligationtoeffecttheTransactionscannotbesatisfied.Si:crioN9.2EFFECTOFTERMINATION.In"theeventoftermin'ationofthisAgreementbyeitheBrooklynUnionorLILCOpursuanttoSECTION9.1thereshallbenoliabilityonthepartofeitherBrooklyA-38
'UnionorLILCOortheirrespectiveofficersordirectorshereunder,exceptthatSECTION9.3,theagreementcontainedinthelastsentenceofSECTION7.1,SECTION10.2andSECTION10.8shallsurvivethetermination.HSECTION9.3TERMINATIONFEE;EXPENSES.(a)TERMINATIONFEEUPONBREACHORWITHDRAWALOFAPPROVAL.IfthisAgreementisterminatedatsuchtimethatthisAgreementisterminablepursuanttoone(butnotboth)of(x)SECTION9.1(g)(i)or(ii)or(y)SECTION9,1(h)(i)or(ii),,then:(i)thebreachingpartyshallpromptly(butnotlaterthanfivebusinessdaysafterreceiptofnoticefromthenon-breachingparty)paytothenon-breachingpartyincashanamountequaltoalldocumentedout-of-pocketexpensesandfeesincurredbythenonbreachingparty(including,withoutlimitation,feesandexpensespayabletoalllegal,accounting,financial,publicrelationsandotherprofessionaladvisors)arisingoutof,inconnectionwithorrelatedtothetransactionscontemplatedbythisAgreementnotinexcessof$10million;PROVIDED,HOWEVER,that,ifthisAgreementis.terminatedbyapartyasaresultofawillfulbreachbytheotherparty,thenon-breachingpartymaypursueanyremediesavailabletoit.atlaworinequityandshall,.inadditiontoitsout-of-pocketexpenses(whichshallbepaidasspecifiedaboveandshallnotbelimitedto$10million),beentitledtoretainsuchadditionalamountsassuchnon-breachingpartymaybeentitledtoreceiveatlaworinequity;and(ii)if(x)atthetimeofthebreachingparty'swillfulbreachofthisAgreement,thereshallhavebeenathirdpartytenderofferforsharesof,orathirdpartyofferorproposalwithrespecttoaBusinessCombinationinvolving,suchpartyoranyofitsaffiliateswhichatthetimeofsuchterminationshallnothavebeenrejectedbysuchpartyanditsboardofdirectorsandwithdrawnbythethirdparty,and(y)withintwoandone-halfyearsofanyterminationbythenon-breachingparty,thebreachingpartyoranaffiliatethereofbecomesa'subsidiaryofsuchofferororasubsidiaryofanaffiliateofsuchofferororacceptsawrittenoffertoconsummateorconsummatesaBusinessCombinationwithsuchofferororanaffiliatethereof,thensuchbreachingparty.(jointlyandseverallywithitsaffiliates),uponthesigningofadefinitiveagreementrelatingtosuchaBusinessCombination,or,ifnosuchagreementissignedthenattheclosing(andasaconditiontotheclosing)ofsuchbreachingpartybecomingsuchasubsidiaryorofsuchBusinessCombination,willpaytothenon-breachingpartyincashanadditionalfeeequalto$65million(ifthebreachingpartyisLILCO)or$35million(ifthebreachingpartyisBrooklynUnion).(b)ADDITIONALTERMINATIONFEE.If(i)thisAgreement.(x)isterminatedbyanypartypursuanttoSECTION9.1(e)orSECTION9.1(f)orSECTION9.1(g)(iii)orSECTION9.1(h)(iii),(y)isterminatedfollowingafailureof'theshareholdersofanyoneofthePartiestograntthenecessaryapprovalsdescribedinSECTION4.13andSECTION5.13or(z)isterminatedasaresultofsuchparty'smaterialbreachofSECTION7.4,and(ii)atthetimeofsuchterminationorpriortothemeetingofsuchparty'sshareholdersthereshallhavebeenathird-partytenderofferforsharesof,orathird-partyofferorproposalwithrespecttoaBusinessCombinationinvolving,suchpartyoranyofitsaffiliateswhichatthetimeofsuchterminationorofthemeetingofsuchparty'sshareholdersshallnothavebeen(A)rejectedbysuchpartyanditsboardofdirectorsand(B)withdrawnbythethirdparty,and,withintwoandone-halfyearsofanysuchtermination,thepartywhichwasthesubjectofsuchofferorproposal(the"TARGETPARTY")becomesasubsidiaryofsuchofferororasubsidiaryofanaffiliateofsuchofferororacceptsawrittenoffertoconsummateorconsummatesaBusinessCombinationwithsuchofferororanaffiliatethereof,thensuchTargetParty,(jointlyandseverallywithitsaffiliates),uponthesigningofadefinitiveagreementrelatingtosuchaBusinessCombination,or,ifnosuchagreementissigned,thenattheclosing(andasaconditiontotlieclosing)ofsuchTargetPartybecomingsuch'asubsidiaryorofsuchBusinessCombination,willpaytotheotherparty,ifLILCOistheTargetParty,$75million,andifBrooklynUnionistheTargetParty,$45million,ineachcaseincashplus,ineithercase,theout-of-pocketfeesandexpensesincurredbytheotherparty(including,withoutlimitation,feesandexpensespayabletoalllegal,accounting,firiancial,publicrelationsandotherprofessionaladvisors)arisingoutof,inconnectionwithorrelatedtothetransactionscontemplatedbythisAgreement.(c)LIPAAGREEMENT.ForpurposesofSECTIONS9.3(a)and(b),'theLIPAAgreementshallbedeemedaproposalforaBusinessCombinationinvolvingLILCOandLIPAshallbedeemedtheofferorwithespectthereto,andanyfeeforthebenefitofBrooklynUnionwouldbepayableundersuchsectionsatthetimehisAgreementisterminated;PROVIDED,thatifthisAgreementisterminatedfollowingafailureofthe shareholdersofLILCOtogranttheLILCOShareholders'pprovaldescribedin,Section5.13,theLIPAAgreementshallnot.bedeemedaproposalforaBusinessCombinationinvolvingLILCOandnofeeshallbepayabletoBrooklynUnionbyvirtueoftheLIPAAgreementunderSections9.3(b)(i)(y)and9.3(b)(ii).(d)EXPENSES.ThepartiesagreethattheagreementscontainedinthisSECTION9.3areanintegralpartofthetransactionscontemplatedbytheAgreementandconstituteliquidateddamagesandnotapenalty.Ifonepartyfailstopromptlypaytotheotheranyfeeduehereunder,thedefaultingpartyshallpaythecostsandexpenses(includinglegalfeesandexpenses)inconnectionwithanyaction,includingthefilingofanylawsuitorotherlegalaction,takentocollectpayment,togetherwithinterestontheamountofanyunpaidfeeatthepubliclyannouncedprimerateofCitibank,N.A.fromthedatesuchfeewasrequiredtobepaid.(e)LIMITATIONOFTERMINATIONFEES.Notwithstandinganythinghereintothecontrary,theaggregateamountpayabletoBrooklynUnionanditsaffiliatespursuanttoSECTION9.3(a);SECTION9.3(b)andthetermsof'theLILCOStockOptionAgreementshallnotexceed$90millionandtheaggregateamountpayabletoLILCOanditsaffiliatespursuanttoSECTION9.3(a),SECTION9.3(b)andthetermsoftheBrooklynUnionStockOptionAgreementshallnot'exceed$50million(includingreimbursementforfeesandexpensespayablepursuanttothisSECTION9.3).ForpurposesofthisSECTION9.3(c),theamountpayablepursuanttothetermsoftheLILCOStockOptionAgreementortheBrooklynUnionStockOptionAgreement,asthecasemaybe,shallbetheamountpaidpursuanttoSection7(a)(i)and7(a)(ii)thereof.SEcTION9.4AMENDMENT.ThisAgreementmaybeamendedbytheBoardsofDirectorsofthepartieshereto,atanytimebeforeorafterapprovalhereofbytheshareholdersofBrooklynUnionandLILCOandpriortotheEffectiveTime,butaftersuchapprovals,nosuchamendmentshall(i)alterorchangetheamountorkindofsharestobeissuedunderARTICLEIIor(ii)alterorchangeanyofthetermsandconditionsofthisAgreementifanyofthealterationsorchanges,aloneorintheaggregate,wouldmateriallyadverselyaffecttherightsofholdersofBrooklynUnionCommonStockorLILCOCommonStock.ThisAgreementmaynotbeamendedexceptbyaninstrumentinwritingsignedonbehalfofeachofthepartieshereto.SEGTIQN9.5WAIVER.Atany,timepriortotheEffectiveTime,thepartiesheretomay(a)extendthetimefortheperformanceofanyoftheobligationsorotheractsoftheotherpartieshereto,(b)waiveanyinaccuraciesintherepresentationsand"warrantiescontainedhereinorinanydocumentdeliveredpursuantheretoand(c)waivecompliancewithanyoftheagreementsorconditionscontainedherein,totheextentpermittedbyapplicablelaw.Anyagreementonthepartofapartyheretotoanysuchextensionorwaivershallbevalidifsetforthinaninstrumentinwritingsignedonbehalfofsuchparty.ARTICLEXGENERALPROVISIONSSEcrioN10.1NON-SURVIVAL;'EFFECTOFREPRESENTATIONSANDWARRANTIES.(a)Allrepresentations,warrantiesandagreementsinthisAgreementshallnotsurvivetheEffectiveTime,exceptasotherwiseprovidedinthisAgreementandexc'eptfortheagreementscontainedinthisSECTION10.1andinARTICLEII,SECTION7.5,SECTION7.9,SECTION7.10,SECTION7.11,SECTION7.14,SECTION7.15andSECTION10.7.(b)Nopartymayassertaclaimforbreachofanyrepresentation,warrantyorcovenantcontainedinthisAgreement(whetherbydirectclaimorcounterclaim)exceptforthepurposeofassertingarighttoterminatethisAgreementpursuanttoSECTION9.1(g)(i)orSECTION9.1(h)(i)(o',pursuanttoanyothersubsectionofSECTION9.1,iftheterminatingpartywouldhavebeenentitledtoterminatethisAgreementpursuanttoSECTION9.1(g)(i)orSECTION9.1(h)(i))orpursuanttoSECTION-9.3.SEcrioN10.2BROKERS.BrooklynUnionrepresentsandwarrantsthat,exceptforMerrillLynchwhos~feeshavebeendisclosedtoLILCOpriortothedatehereof,nobroker,finderorinvestmentbankerisentitledt~A-40 nybrokerage,finder'sorotherfeeor,commission,inconnectionwiththetransactionscontemplatedbythisAgreementbaseduponarrangementsmadebyoronbehalfofBrooklynUnion.LILCOrepresentsandwarrantsthat,exceptforDillonReadwhosefees,havebeendisclosedtoBrooklynUnionpriortothedatehereof,nobroker,finderorinvestmentbankerisentitledtoanybrokerage,finder'sorotherfeeorcommissioninconnectionwiththetransactionscontemplatedbythisAgreementbaseduponarrangementsmadebyoronbehalfofLILCO.Srcrtow10.3NOTICES.Allnoticesandothercommunicationshereundershall,beinwritingandshallbedeemedgivenif(i)delivered.personally,(ii)sentbyreputableovernightcourierservice,(iii)telecopied(whichisconfirmed),or(iv)fivedaysafterbeingmailedbyregisteredorcertifiedmail(returnreceiptrequested)tothe,partiesatthefollowingaddresses(oratsuchotheraddressforapartyasshallbespecifiedbylikenotice):(a)IftoBrooklynUnion,to:TheBrooklynUnionGasCompany'neMetroTechCenterBrooklyn,NewYork11201-3850Attention:ChiefExecutiveOfficerP*Jwithacopyto:Wachtell,Lipton,Rosen4Katz51West52ndStreet'NewYork,NewYork10019Attention:Richar'dD.KatcherandSethA.Kaplan(b)IftoLILCO,to:,LongIslandLightingCompany175EastOldCountyRoadHicksville,NewYork11801Attention:ChiefExecutiveOfficerwithacopyto:Kramer,Levin,Naftalis&Frankel919ThirdAvenueNewYork,NewYork10022Attention:ThomasE.ConstanceSEcTloN10.4MISCELLANEOUS.ThisAgreementincludingthedocumentsandinstrumentsreferredtoherein(i)constitutestheentireagreementandsupersedesallotherprioragreementsandunderstandings,bothwrittenandoral,amongtheparties,oranyofthem,withrespecttothesubjectmatterhereofotherthantheConfidentialityAgreement;(ii)shallnotbeassignedbyoperationoflaworotherwise;and(iii)shallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkapplicabletocontractsexecutedinandtobefullyperformedinsuchState,withoutgivingeffecttoitsconfiictsoflawrulesorprinciples.Secrtow10.5INTERPRETATION.WhenareferenceismadeinthisAgreementtoSectionsorExhibits,suchreferenceshallbetoaSectionorExhibitofthisAgreement,respectively,unlessotherwiseindicated.ThetableofcontentsandheadingscontainedinthisAgreementareforreferencepurposesonlyandshallnotaffectinanywaythemeaningorinterpretationofthisAgreement.Wheneverthewords"include","includes"or"including"areusedinthisAgreement,theyshallbedeemedtobefollowedbythewords"withoutlimitation".SilcrtoN10.6COUNTERPARTS;EFFECT.ThisAgreementmaybeexecutedinoneormoreunterparts,eachofwhichshallbedeemedtobeanoriginal,butallofwhichshallconstituteoneandthesamereement.
Srcrtox10.7PARTIESININTEREST;ASSIGNMENT.This'Agreementshallbebindinguponainuresolelytothebenefitofeachpartyheretoandshallnot'beassignedbyoperationoflaworotherwise;provided,however,tliatupontheconsummationoftheKeySpanRestructuring,BrooklynUnionshallassigntoKeySpan,andKeySpanshallbesubstitutedforandshallassume,allofBrooklynUnion'srightsandobligationshereundereffectiveupontheeffectivetimeoftheKeySpanRestructuring,andthepartiesheretoshallexecuteanyamendmenttothisAgreementnecessarytoprovidethebenefitsofthisAgreementtoKeySpan.ExceptforrightsofIndemnifiedParties-assetforthinSECTION7.5,nothing'nthisAgreement,expressorimplied,isintendedtoconferuponanyotherpersonanyrightsorremediesofanynaturewhatsoeverunderoxbyreasonofthisAgreement.NotwithstandingtheforegoingandanyotherprovisionofthisAgreement,andinadditiontoanyotherrequiredactionoftheBoardofDirectorsoftheCompany(a)amajorityofthedirectorsofLILCO(ortheirsuccessors)servingontheBoardofDirectorsoftheCompanywhoaredesignatedbyLILCOpursuanttoSECTION7.13shallbeentitledduringthethreeyearperiodcommencingattheEffectiveTime(the"THREEYEARPERIOD")toenforcetheprovisionsofSECTION7.9,SECTION,7.10,SECTION7.11andSECTION7.14onbehalfoftheLILCOofficers,directorsandemployees,asthecasemaybe,and(b)amajorityofdirectorsofBrooklynUnion(ortheirsuccessors)servingontheBoardofDirectorsoftheCompanywhoaredesignatedbyBrooklynUnionpursuanttoSECTION7.13shallbeentitledduringtheThreeYearPeriodtoenforcetheprovisionsofSECTIONS7.9,SECTION7.10,SECTION7.11,andSECTION7.14onbehalfoftheBrooklynUnionofficers,directorsandemployees,asthecasemaybe.Suchdirectors'ightsand'remediesundertheprecedingsentencearecumulativeandareinadditiontoanyotherrightsandremediestheymayhaveatlaworinequity,butinnoeventshallthisSECTION10.7bedeemedtoimposeanyadditionaldutiesonanysuchdirectors.TheCompanyshallpay,atthetimetheyareincurred,allcosts,feesandexpensesofsuchdirectorsincurredinconnectionwiththeassertionofanyrightsonbehalfofthepersonssetforthabovepursuanttothisSECTION10.7.Sacriont10.8WAIVEROFJURYTRIALANDCERTAINDAMAGES.EachpartytothisAgreementwaives,tothefullestextentpermittedbyapplicablelaw,(i)anyrightitmayhavetoatrialbyjuryinrespectofanyaction,suitorproceedingarisingoutoforrelatingtothisAgreementand(ii)withoutlimitationtoSECTIO9.3,anyrightitmayhavetoreceivedamagesfromanyotherpartybasedonanytheoryofliabilityforaispecial,indirect,consequential(includinglostprofits)orpunitivedamages.St.cnow10.9ENFORCEMENT.ThepartiesagreethatirreparabledamagewouldoccurintheeventthatanyoftheprovisionsofthisAgreementwerenotperformedinaccordancewiththeirspecifictermsorwereotherwisebreached.ItisaccordinglyagreedthatthepartiesshallbeentitledtoaninjunctionorinjunctionstopreventbreachesofthisAgreementandtoenforcespecificallythetermsandprovisionsofthisAgreementinanycourtoftheUnitedStateslocatedintheStateofNewYorkorinNewYorkstatecourt,thisbeinginadditiontoanyotherremedytowhichtheyareentitledatlaworinequity.A-42 INWITNESSWHEREOF,BrooklynUnionandLILCOhavecausedthisAgreementtobesignedbytheirrespectiveofficersthereuntodulyauthorizedasofthedatefirstwrittenabove.THEBROOKLYNUNIONGASCOMPANYBy/S/ROBERTB.CATELLRobertB.CatellChiefExecutiveOfficerLONGISLANDLIGHTINGCOMPANYBy:/s/WILLIAMJ.CATAcosINosDr.WilliamJ.CatacosinosChiefExecutiveOfficerA-43
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AMENDEDANDRESTATEDLILCOSTOCKOPTIONAGREEMENTANNEXBAMENDEDANDRESTATEDSTOCKOPTIONAGREEMENT,datedasofJune26,1997,byandbetweenTHEBROOKLYNUNIONGASCOMPANY,aNewYorkcorporation("BrooklynUnion"),andLONGISLANDLIGHTINGCOMPANY,aNewYorkcorporation(the"COMPANY").WHEREAS;concurrentlywiththeexecutionanddeliveryofthisAgreement,(i)BrooklynUnionandtheCompanyareenteringintoanAmendedandRestatedAgre'ementandPlan'ofExchangeandMerger,datedasofthedatehereof(asthesamemaybeamendedfromtimetotime,the"EXCHANGEAGREEMENT"),whichprovides,amongotherthings,uponthetermsandsubjecttotheconditionsthereof,fortheexchangeofoutstandingsharesofcapitalstockofeachofBrooklynUnionandtheCompanyfornewlyissuedsharesofcapital'stockofaNewYorkcorporationtobeformed(the"BINDINGSHAREEXCHANGES"),and(ii)theCompanyandBrooklynUnionareenteringintoacertainamendedandrestatedstockoptionagreementdatedasofthedatehereofwherebyBrooklynUniongrantsto'heCompanyanoptionwithrespecttocertainsharesofBrooklynUnion'scommonstockonthetermsandsubjecttotheconditionssetforththerein(the"BROOKLYNUNIONSTOCKOPTIONAGREEMENT");WHEREAS,asaconditiontoBrooklynUnion'swillingnesstoenterintotheoriginalAgreementandPlanofExchangebyandamongBrooklynUnion,LILCOandNYECOCorp.,datedasofDecember29,1996,BrooklynUnionhasrequestedthattheCompanyagree,andtheCompanyhassoagreed,togranttoBrooklynUnionanoptionwithrespecttocertainsharesoftheCompany'scommonstock,onthetermsandsubjecttotheconditionssetforthherein;,WHEREAS,thepartiesdesiretoamendandrestatetheoriginalLILCOStockOptionAgreementasoftheatehereoftorefiecttheExchangeAgreement.NOW,THEREFORE,toinduceBrooklynUniontoenterintotheExchangeAgreement,andinconsiderationofthemutualcovenantsandagreementssetforthhereinandintheExchangeAgreement,thepartiesheretoagreeasfollows:1.GRANTOFOPTION.TheCompanyhereby'rantsBrooklynUnionanirrevocableoption(the-"COMPANYOPTION")topurchaseupto23,981,964shares,subjecttoadjustmentasprovidedinSection10(suchsharesbeingreferredtohereinasthe"COMPANYSHARES")ofcommonstock,parvalue$5.00'ershare,oftheCompany(the"COMPANYCOMMONSTOCK")(being19.9%ofthenumberofsharesofCompanyCommonStockoutstandingonthedatehereof)inthemannersetforthbelowataprice(the"EXERCISEPRICE")perCompanyShareof$19.725(whichisequaltotheFairMarketValue(asdefinedbelow)ofaCompanyShareonthedatehereof)payable,atBrooklynUnion'soption,(a)incashor(b)subjecttotheCompany'shavingobtainedtheapprovalsofanyGovernmentalAuthorityrequiredfortheCompanytoacquiretheBrooklynUnionShares(asdefinedbelow)fromBrooklynUnion,whichapprovalstheCompanyshallusebesteffortstoobtain,insharesofcommonstock,parvalue$.33$pershare,ofBrooklynUnion("BROOKI.YNUNIONSHARES")ineithercaseinaccordancewithSection4hereof.Notwithstandingtheforegoing,inno,eveqtshallthenumberofCompanySharesforwhichtheCompanyOptionisexercisableexceed19,9%ofthenumberofissuedandoutstandingsharesofCompanyCommonStock.Asusedherein,the"FAIRMARKETVALUE"ofanyshareshallbetheaverageofthedailyclosingsalespriceforsuchshareontheNewYorkStockExchange(the"NYSE")duringthe10NYSEtradingdayspriortothefifthNYSEtradingdayprecedingthedatesuchFairMarketValueistobedetermined.Capitalizedtermsusedhereinbutnot,definedhereinshallhavethemeaningssetforthintheExchangeAgreement.t2.EXERCISEOFOPTION.TheCompanyOptionmaybeexercisedbyBrooklynUnion,inwholeorinpart,atanytimeorfromtimetotimeaftertheExchangeAgreementbecomesterminablebyBrooklynUnionundercircumstanceswhichcouldentitleBrooklynUnionto.terminationfeesundereitherSectionB-1 9.3(a)oftheExchangeAgreement(providedthattheeventsspecifiediriSection9.3(a)(ii)(x)oftheExchangeAgreementshallhaveoccurred,althoughtheeventsspecifiedinSection9.3(a)(ii)(y)thereofneednothaveoccurred)orSection9.3(b)oftheExchangeAgreement(regardlessofwhethertheExchangeAgreementisactuallyterminatedorwhetherthereoccursa'closingofanyBusinessCombinationinvolvingaTargetPartyoraclosingbywhichaTargetPartybecomesasubsidiary),anysucheventbywhichtheExchangeAgreementbecomessoterminablebyBrooklynUnionbeingreferredtohereinasa"TRIGGEREVENT."TheCompanyshallnotifyBrookIynUnionpromptlyinwritingoftheoccurrenceofanyTriggerEvent,itbeingunderstoodthatthegivingofsuchnoticebytheCompanyshallnotbeaconditiontotherightofBrooklynUniontoexercisetheCompanyOption.In,theeventBrooklynUnionwishestoexercisetheCompanyOption,BrooklynUnionshalldelivertotheCompanyawrittennotice(an"EXERCISENOTICE")specifyingthetotalnumberofCompanySharesitwishestopurchase.EachclosingofapurchaseofCompanyShares(a"CLOSING")shalloccurataplace,onadateandatatimedesignatedbyBrooklynUnioninanExerciseNoticedeliveredatleasttwobusinessdayspriortothedateoftheClosing.TheCompanyOptionshallterminateupontheearlierof:(i)theEffectiveTime;(ii)theterminationoftheExchangeAgreementpursuanttoSection9.1thereof(otherthanuponorduringthecontinuanceofaTriggerEvent);or(iii)180daysfollowinganyterminationoftheExchangeAgreementuponorduringthecontinuanceofaTriggerEvent(orif,attheexpirationof,suchl80dayperiodtheCompanyOptioncannotbeexercisedbyreasonofanyapplicablejudgment,decree,order,laworregulation,10business,daysaftersuchimpedimenttoexerciseshallhavebeenremovedorshallhavebecomefinalandnotsubjecttoappeal,butinnoeventunderthisclause(iii)laterthanApril28,1999).Notwithstandingtheforegoing,theCompanyOptionmaynotbeexercisedifBrooklynUnionisinmaterialbreachofanyofitsmaterialrepresentationsorwarranties,orinmaterialbreachofanyofitscovenantsoragreements,containedinthisAgreementorintheExchangeAgreement.Uponthegivingby.,BrooklynUniontotheCompanyoftheExerciseNoticeandthetenderoftheapplicableaggregateExercisePrice,BrooklynUnionshallbedeemedtobetheholderofrecordoftheCompanySharesissuableuponsuchexercise,notwithstandingthatthestocktransferbooksoftheCompanyshallthenbeclosedorthatcertificatesrepresentingsuchCompanySharesshallnotthenbeactuallydeliveredtoBrooklynUnion.3.CONDITIONSTOCLOSING.TheobligationoftheCompany,toissuetheCompanySharestoBrooklynUnionhereunderissubjecttotheconditions,which(otherthantheconditionsdescribedinclauses(i),(iii)and(iv)below)maybewaivedbytheCompanyinitssolediscretion,that(i)allwaitingperiods,ifany,undertheHSRAct,applicabletotheissuanceoftheCompanyShareshereundershallhaveexpiredorhavebeenterminated;(ii)theCompanyShares,andanyBrooklynUnionShareswhichareissuedinpaymentoftheExercisePrice,shallhavebeenapprovedforlistingontheNYSEuponofficialnoticeofissuance;(iii)allconsents,approvals,ordersorauthorizationsof,orregistrations,declarationsorfilingswith,anyfederal,stateorlocaladministrativeagencyorcommissionorotherfederal,stateorlocalGovernmentalAuthority,ifany,requiredinconnectionwiththeissuanceoftheCompanyShareshereundershallhavebeenobtainedormade,asthecasemaybe,including,withoutlimitation,ifapplicable,theapprovaloftheSECunderSection10ofthe1935ActoftheacquisitionoftheCompanySharesbyBrooklynUnionand,ifapplicable,theacquisitionbytheCompanyoftheBrooklynUnionSharesconstitutingtheExercisePricehereunder;and(iv)nopreliminaryorpermanentinjunctionorotherorderbyanycourtofcompetentjurisdictionprohibitingorotherwiserestrainingsuchissuanceshallbeineffect.4.CLOSING.AtanyClosing,(a)theCompanywilldelivertoBrooklynUnionoritsdesigneea'inglecertificateindefinitiveformrep'resentingthenumberoftheCompanySharesdesignatedbyBrooklynUnioninitsExerciseNotice,suchcertificatetoberegisteredinthenameofBrooklynUnionandtobearthelegendsetforthinSection11,.and(b)BrooklynUnionwilldelivertotheCompanytheaggregatepricefortheCompanySharessodesignatedandbeingpurchasedby(i)wiretransferofimmediatelyavailablefundsorcertifiedcheckorbankcheckor(ii)subjecttotheconditioninSection1(b),acertificateorcertificatesrepresentingthenumberofBrooklynUnionSharesbeingissuedbyBrooklynUnioninconsiderationthereof,asthe,casemaybe.ForthepurposesofthisAgreement,thenumberofBrooklynUnionSharestobedeliveredtotheCompanyshallbeequaltothequotientobtainedbydividing(i)th~productof(x)thenumberofCompanyShareswithrespecttowhichtheCompanyOptionisbeingexercise~B-2 and(y)theExercisePriceby(ii)theFairMarketValueoftheBrooklynUnionSharesonthedateimmediatelyprecedingthedatetheExerciseNoticeisdeliveredtotheCompany.TheCompanyshallpayallexpenses,andanyandallUnitedStatesfederal,stateandlocaltaxesandotherchargesthatmaybepayableinconnectionwiththepreparation,issueanddeliveryofstockcertificatesunderthisSection4inthenameofBrooklynUnionoritsdesignee.5.REPRESENTATIONSANDWARRANTIESOFTHECOMPANY.TheCompanyrepresentsandwarrantstoBrooklynUnionthat(a)exceptassetforthinSection5.1oftheLILCODisclosureSchedule,theCompanyisacorporationdulyorganized,validlyexistingandin"activestatusu'nderthelawsoftheStateofNewYorkandhasthecorporatepowerandauthoritytoenterintothisAgreementand,subjecttoobtainingtheapplicableapprovalofshareholdersoftheCompanyfortherepurchaseofCompanySharespursuanttoSection7(a)belowundercircumstanceswhereSection513(e)oftheNYBCLwouldbeapplicable(the"BUYBACKAPPROVALS")andsubjecttoanyregulatoryapprovalsreferredtohereinandtotheprovisionsofSection513(a)oftheNYBCL,ifapplicable,tocarryoutitsobligationshereunder,(b)theexecutionanddeliveryofthisAgreementbytheCompanyandtheconsummationbytheCompanyofthetransactionscontemplatedherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartoftheCompanyandnoothercorporateproceedingsonthepartoftheCoinpanyarenecessarytoauthorizethisAgreementoranyofthetransactionscontemplatedhereby(otherthananyrequiredBuybackApprovals),(c)suchcorporateaction(includingtheapprovaloftheBoardofDirectorsoftheCompany)isintendedtorenderinapplicabletothisAgreementandtheExchangeAgreementandthetransactionscontemplatedherebyandthereby,theprovisionsoftheNYBCLreferredtoinSection5.15oftheExchangeAgreement,(d)thisAgreementhasbeendulyexecutedanddeliveredbythe,Company,constitutesavalidandbindingobligationoftheCompanyand,assumingthisAgreementconstitutesavalid,andbindingobligationofBrooklynUnion,isenforceableagainsttheCompanyinaccprdancewithitsterms,(e)theCompanyhastakenallnecessarycorporateactiontoauthorizeandreserveforissuanceandtopermitittoissue,uponexerciseoftheCompanyOption,andatalltimesfromthedatehereofthroughtheexpirationoftheCompanyOptionwillhavereserved,23,981,964authorizedandunissuedCompanyShares,suchamountbeingsubjecttoadjustmentasprovidedinSection10,allofwhich,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fullypaidandnonassessable,(f)upondeliveryoftheCompanySharestoBrooklynUnionupontheexerciseoftheCompanyOption,BrooklynUnionwillacquiretheCompanySharesfreeandclearofallclaims,liens,charges,encumbrancesandsecurityinterestsofanynaturewhatsoever,(g)exceptasdescribedinSection5.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbytheCompanydoesnot,andtheconsummationbytheCompanyofthetransactionscontemplatedherebywillnot,violate,conflict)vith,orresultinabreachofanyprovisionof,orconstituteadefault(withorwithoutnoticeorlapseoftime,orboth)under,orresultin'heterminationof,oracceleratetheperformancerequiredby,.orresultinarightoftermination,cancellation,oraccelerationofanyobligationorthelossofamaterialbenefitunder,orthecreationofalien,pledge,securityinterestorotherencumbranceonassets(anysuchconfiict,violation,default,rightoftermination,cancellationoracceleration,lossorcreation,a"VIOL'ATION")"oftheCompanyoranyofitssubsidiaries,purs'uantto,(A)anyprovisionofthecertificateofincorporationorby-laws'oftheCompany,(B)anyprovisionsofanyloanorcreditagreement,note,mortgage,indenture,lease,Companybenefitplanorotheragreemenf,obligation,instrument,permit,concession,franchise,licenseor(C)anyjudgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletotheCompanyoritspropertiesorassets,whichViolation,inthecaseofeachofclauses(B)and(C),couldreasonablybeexpectedtoliaveamaterialadverseeffectontheCompanyanditssubsidiariestakenasawhole',(h)exceptasdescribedinSection5.4(c)oftheExchangeAgreementorSection1(b)orSection3hereof,theexecutionanddeliveryofthisAgreementbytheCompanydoesnot,andtheperformanceofthisAgreementbytheCompanywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthority,(i)noneoftheCompany,anyofitsaffiliatesoranyoneactingonitsortheirbehalfhasissued,soldorofferedanysecurityoftheCompanytoanypersonundercircumstancesthatwouldcausetheissuanceandsaleoftheCompanyShares,ascontemplatedbythisAgreement,tobesubjecttothetregistrationrequirementsoftheSecuritiesActasineffectonthedatehereofand,assumingtherepresentationsofBrooklynUnion'containedinSection6(h)aretrueandcorrect,theissuance,saleandB-3 tdeliveryoftheCompanyShareshereunderwouldbeexemptfromtheregistrationandprospectusdeliverequirementsoftheSecuritiesAct,asineffectonthedatehereof(andtheCompanyshallnottakeanyactionwhichwouldcausetheissuance,saleanddeliveryoftheCompanyShareshereundernottobeexemptfromsuchrequirements),and(j)anyBrooklynUnionSharesacquiredpursuanttothisAgreementwillbeacquiredfortheCompany'sownaccount,forinvestmentpurposesonlyandwillnotbeacquiredbytheCompanywithaviewtothepublicdistributionthereofinviolationofanyapplicableprovisionoftheSecuritiesAct.6.REPRESENTATIONSANDWARRANTIESOFBrooklynUnion.BrooklynUnionrepresentsandwarrantstotheCompanythat(a)BrooklynUnionisacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsoftheStateofNewYorkand,hasthecorporatepowerandauthorityto~enterintothisAgreementandtocarryoutitsobligationshereunder,(b)theexecutionanddeliveryofthisAgreementbyBrooklynUnionandtheconsummationbyBrooklynUnionofthetransactionscontemplatedherebyhavebet:ndulyauthorizedbyallnecessarycorporateactiononthepartofBrooklynUnionandnoothercorporateproceedingsonthepartofBrooklynUnionarenecessarytoauthorizethisAgreementoranyofthetransactionscontemplatedhereby,(c)thisAgreementhasbeendulyexecutedanddeliveredbyBrooklynUnionandconstitutesavalidandbindingobligationofBrooklynUnion,and,assumingthisAgreementconstitutesavalidand'bindingobligationoftheCompany,isenforceableagainstBrooklynUnioninaccordancewithitsterms,(d)priortoanydeliveryofBrooklynUnionSharesinconsiderationofthepurchaseofCompaliySharedpursuanthereto,BrooklynUnionwillhavetakenallnecessarycorporateactiontoauthorizefor'ssuance'andtopermitittoissuesuchBrooklynUnionShares,allofwhich,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fullypaidandnonassessable,"andtorenderinapplicabletothereceiptbytheCompanyoftheBrooklynUnionSharestheprovisionsoftheNYBCLreferredtoinSection4.15oftheExchangeAgreement,(e)uponanydeliveryofsuchBrooklynUnionSharestotheCompanyinconsiderationofthepurchaseofCompanySharespursuanthereto,theCompanywillacquiretheBrooklynUnionSharesfreeandclearofallclaims,liens,charges,encutnbrari'cesandsecurityinterestsofanynaturewhatsoever,(f)exceptasdescribedinSection4.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbyBrooklUniondoesnot,andtheconsummationbyBrooklynUnionofthetransactionscontemplatedherebywnot,violate,conflictwith,orresultinthebrcachofanyprovisionof,orconstituteadefault(withorwithout"noticeorlapseof'ime,orboth)under,orresultinanyViolationbyBrooklynUnionoranyofitssubsidiaries,pursuantto(A)anyprovisionofthecertificateofincorporationorb'-lawsofBrooklynUnion,(B)anyprovisionsofanyloan6rcredit"agreement,note,m'ortgage,indenture,'ease,BrooklynUnionbenefitplanorotheragtee'ment,obligation,in'strument,permit,concession,franchise,licenseor(C)anyjudgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletoBrooklynUnionoritspropertiesorassets,whichViolation,inthecaseofeachofitsclhuses(B)and/or(C),wouldhaveamaterialadverseeffectonBrooklynUnionanditssubsidiariestakenasawhole,(g)exceptasdescribedinSection4.4(c)oftheExchangeAgreementorSection1(b)orSection3hereof,theexecutionanddeliveryofthisAgreementbyBrooklynUniondoesnot,'andtheconsummationbyBrooklynUnionofthetransactionscontemplatedherebywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthorityand(h)anyCompanySharesacquireduponexerciseoftheCompanyOptionwillbeacquiredforBrooklynUnion'sownaccount,forinvestmentpurposesonlyandwillnotbe,andtheCompanyOptionisnotbeing,acquired,byBrooklynUnionwithaviewtothepublicdistributionthereofinviolationofanyapplicableprovisionoftheSecuritiesAct.7.CERTAINREPURCHASES.(a)BROOKLYNUNIONPUT.AttherequestofBrooklynUnionby"writtennoticeatanytimeduringwhichtheCompany'Optionisexercisablepursuantto'Section2(the"REPURCHASEPERIOD"),theCompany(oranysuccessorentityihereof)shallrepu'rchasefromBrooklynUnionalloranyportionofthe'CompanyOption,atthepricesetforthinsubparagraph(i)below,or,attherequestofBrooklynUniori'ywrittennoticeatanytimepriortoAugust31,1998(providedthatsuchdateshallbeextendedtoApril28,1999underthecircumstanceswherethedateafterwhicheithpartymayterminatetheExchangeAgreementpursuanttoSection9.1(b)oftheExchangeAgreemBA hasbeenextendedtoApril28,1999),theCompany(or'anysuccessorentitythereof)shallrepurchasefromBrooklynUnionalloranyportionoftheCompanySharespurchasedbyBrooklynUnionpursuanttotheCompanyOption,atthepricesetforthinsubparagraph(ii)below'.(i)the,differencebetweenthe'MARKET/OFFERPRICE"forsharesofCompanyCommonStockasofthedateBrooklynUniongivesnoticeofitsintenttoexerciseitsrightsunderthisSection7(definedasthehigherof(A)thepricepcrshareofferedasofsuchdatepursuanttoanytenderor'xchangeofferorotherofferwithrespecttoaBusiness'sCombinationwhichwasmadepriortosuchdateandnotterminatedorwithdrawnayofsuchdate(the"OFFERPRICE")and(B)theFairMarketValueofCompanyCommonStockasofsuchdate(the"MARKETPRICE"))andtheExercisePrice,multipliedbythenumberofCompanySharespurchasablepursuanttotheCompanyOption(orportionthereof"withrespecttowhichBrooklynUnionisexercisingitsrightsunderthisSection7),butonlyiftheMarket/OfferPriceisgreaterthanthe'xercisePrice;(ii)theproductof(x)thesumof(A)theExercisePricepaidbyBrooklynUnionperCompanyShareacquiredpursuanttotheCompanyOptionand(B)thedifferencebetweentheMarket/OfferPriceandtheExercisePrice,butonlyiftheMarkef/OfferPriceisgreaterthantheExercisePrice,and(y)thenumberofCompanySharestoberepurchasedpursuanttothisSection7.Forpurposesofthisclause(ii),theOfferPriceshallbethehighestpricepershareofferedpursuanttoatenderorexchangeofferorotherBusinessCombinationofferduringtheRepurchasePeriodpriortothedeliverybyBrooklynUnionofanoticeofrepurchase.(b)REDELIVERYOFBROOKLYNUNIONSHARES.IfBrooklynUnionelectedtopurchaseCompanySharespursuanttotheexerciseoftheCompanyOptionbytheissuanceanddeliveryofBrooklynUnionShares,then.theCompanyshall,ifsorequestedbyBrooklynUnion,infulfillmentofitsobligationpursuanttoclause(a)ofSection7(a)(ii)(x)(thatis,withrespecttotheExercisePriceonlyandwithoutlimitationtoitsobligationtopayadditionalconsiderationunderclause(b)ofSection7(a)(ii)(x)),redeliverthecertificateforsuchBrooklynUnionSharestoBrooklynUnion,freeandclearofallliens,claims,damages,chargesandencumbrancesofanykindornaturewhatsoever;provided,however,thatiflessthanalloftheCompanySharespurchasedbyBrooklynUnionpursuanttotheCompanyOptionaretoberepurchasedpursuanttothisSection7,thenBrooklynUnionshallissuetotheCompanyanewcertificaterepresentingthoseBrooklynUnionShareswhicharenotduetoberedeliveredtoBrooklynUnionpursuanttothisSection7astheyconstitutedpaymentoftheExercisePricefortheCompanySharesnotbeingrepurchased.(c)PAYMENTANDREDELIVERYOFCOMPANYOPTIONORSHARES.IntheeventBrooklynUnionexercisesitsrightsunderthisSection7,theCompanyshall,within10businessdaysthereafter,paytherequiredamoun'ttoBrooklynUnioninimmediatelyavailablefundsandBrooklynUnionshallsurrendertotheCompanytheCompanyOptionorthecertificatesevidencingtheCompanySharespurchasedbyBrooklynUnionpursuantthereto,andBrooklynUnionshallwarrantthatitownstheCompanyOptionorsuchsharesandthaftheCompanyOption'orsuchsharesarethenfreeandclearofallliens,claims,damages,chargesandencumbrancesofanykindornaturewhatsoever.(d)BROOKLYNUNIONCALL.IfBrooklynUnionhaselectedtopurchaseCompanySharespursuanttotheexerciseoftheCompanyOptionbytheissuanceanddeliveryofBrooklynUnionShares,notwithstandingthatBrooklynUnionmaynolongerholdanysuchCompanySharesorthatBrooklynUnionelectsnottoexerciseitsotherrightsunderthisSection7,BrooklynUnion.mayrequire,atanytimeorfromtimetotimepriortoAugust31,1998(providedthatsuchdates)tallbeextendedto,April28,1999,underthecircumstanceswherethedateafterwhicheitherpartymay,terminatetheExchangeAgreementpursuanttoSection9,1(b)oftheExchangeAgreementhasbeenextendedtoApril28,1999),theCompanytoselltoBrooklynUnionanysuchBrooklynUnionSharesattheFairMarketValuethathadbeenattributedtosuchBrooklynUnionSharespursuanttoSection4plusinterestattherateof6.5/aperannumonsuchamountfromtheClosingDaterelatingtotheB-5 1exchangeofsuchBrooklynUnionSharespursuanttoSection4totheclosingdateunderthisSectio7(d)lessanydividends'onsuchBrooklynUnionSharespaidduringsuchperiodordeclaredandpayabletostockholdersofrecordonadateduringsuchperiod.(e)REPURCHASEPRICEREDUCEDATBROOKLYNUNION'SOPTION.IntheeventtherepurchasepricespecifiedinSection7(a)wouldsubjectthepurchaseoftheCompanyOptionortheCompanySharespurchasedbyBrooklyn.UnionpursuanttotheCompanyOptiontoavoteoftheshareholdersoftheCompanypursuanttoSection513(e)oftheNYBCL,thenBrooklynUnionmay,atitselection,reducetherepuichasepricetoanamountwhichwouldpermitsuchrepurchasewithoutthenecessityforsuchashareholdervote.8.RESTRICTIONSONTRANSFER.(a)RESTRICTIONSONTRANSFER.PriortotheExpirationDate,neitherpartyshall,directlyorindirectly,byoperationoflaworotherwise,sell,assign,pledge,orotherwisedisposeofortransferanysharesofcapitalstockoftheotherpartyacquiredbysuchpartypursuanttothisAgreement("RestrictedShares")andbeneficiallyownedbysuchparty,otherthan(i)pursuanttoSection7,or(ii)inaccordancewithSection8(b)'orSection9.(b)PERMIITEDSALES.FollowingtheterminationoftheExchangeAgreement,apartyshallbepermittedt'osellanyRestrictedSharesbeneficiallyownedby"itif'suchsaleismade,pursuanttoatenderorexchangeofferthathasbeenapprovedorrecommended,orotherwisedeterminedtobefairtoandinthebestinterestsoftheshareholdersoftheotherparty,by'amajorityofthemembersoftheBoardofDirectorsofsuchotherpartywhichmajorityshallincludeamajorityofdirectorswhoweredirect'orspriortotheannouncementofsuchtenderorexchangeoffer.9.REGISTRATIONRIGHTS.FollowingtheterminationoftheExchangeAgreement,eachpartyhereto(a"DESIGNATEDHOLDER")maybywrittennotice(the"REGISTRATIONNOTICE")totheotherparty(the"REGISTRANT")requesttheRegistranttoregisterundertheSecuritiesAct'lloranypartoftheRestrictedSharesbeneficiallyownedbysuchDesignatedHolder(the"REGISTRABLESECURITIES")pursuanttoabonafidefirmcommitmentunderwrittenpublicofferinginwhichtDesignatedHolderandtheunderwritersshalleffectaswideadistributionofsuchRegistrableSecuritiesisreasonablypracticablcandshallusetheirbesteffortstopreventanyperson(includinganyGroup(asusedinRule13d-5tindertheExchangeAct))anditsaffiliatesformpurchasingthroughsuchofferingRestrictedSharesrepresentingmorethan1%oftheoutstandingsharesofcommonstockoftheRegistrantonafullydilutedbasis(a"PERMIT'EDOFFERING").TheRegistrationNoticeshallincludeacertificateexecutedbytheDesignatedHolderanditsproposedmanagingunderwriter,whichunderwritershallbeaninvestmentbankingfirmofnationallyrecognizedstanding(the"MANAGER"),statingthat(i)theyhaveagoodfaithintentiontocommencepromptlyaPermittedOfferingand(ii)theManageringoodfaithbelievesthat,basedonthethenprevailingmarketconditions,itwillbeabletoselltheRegistrableSecuritiesatapersharepriceequaltoatleast80%ofthethenFairMarketValueofsuchshares.TheRegistrant(and/oranypersondesignatedbytheRegistrant)shallthereuponhavetheoptionexercisablebywrittennoticedeliveredtotheDesignatedHolderwithin10businessdaysafterthereceiptoftheRegistrationNotice,irrevocablytoagreetopu'rchasealloranypartoftheRegistrableSecuritiesproposedtobesosoldforcashataprice(the"OPTIONPRICE")equaltotheproductof(i)thenumberofRegistrableSecuritiestobeso.purchasedbytheRegistrantand(ii)thethenFairMarketValueofsuchshares.AnysuchpurchaseofRegistrableSecuritiesbytheRegistrant(oritsdesignee)hereundershalltakeplaceataclosingtobeheldattheprincipalexecutiveofficesoftheRegistrantorattheofficesofitscounselatanyreasonabledateandtimedesignatedbytheRegistrantand/orsuch,designeeinsuchnoticewithin20businessdaysafterdeliveryofsuchnotice.Anypaymentforthesharestobepurchasedshallbemadebydeliveryatthetimeofsuchclosingof,theOptionPriceinimmediatelyavailablefunds.If.theRegistrantdoesnotelecttoexerciseitsoptionpursuanttothisSection9withrespecttoallRegistrableSecurities,itshalluseitsbesteffortstoeffect,aspromptlyaspracticable,theregistrationundertheSecuritiesActoftheunpurchasedRegistrableSecuritiesproposedtobesosold;provided,however,that(i)neitherpartyshallbeentitledtomorethananaggregateoftwoeffectiveregistrationstatementshereunand(ii)theRegistrantwillnotberequiredtofileanysuchregistrationstatementduringanyperiodoftiB-6 (nottoexceed40daysaftersuchrequestinthecaseofclause(A)belowor90daysinthecaseofclauses(B)and(C)below)when(A)theRegistrantisinpossessionofmaterialnon-publicinformationwhichitreasonablybelieveswouldbedetrimentaltobedisclosedatsuchtimeand,intheopinionofcounseltotheRegistrant,such,informationwouldhavetobedisclosedifaregistrationstatementwerefiledatthattime;(B)theRegistrantisrequiredundertheSecuritiesActtoincludeauditedfinancialstatementsforanyperiodinsuchregistrationstatementapdsuchfinancialstatementsarenotyetavailableforinclusioninsuchregistrationstatement;or(C),theRegistrantdetermines,initsreasonablejudgment,thatsuchregistrationwouldinterferewithanyfinancing,acquisitionorothermaterialtransactioninvolvingtheRegistrantorany.ofitsaffiliates.TheRegistrantshalluseitsreasonablebesteffortstocauseanyRegistrableSecuritiesregisteredpursuanttothisSection9tobequalified,forsaleunderthesecuritiesorBlue-SkylawsofsuchjurisdictionsastheDesignatedHoldermayreasonablyrequestandshallcontinuesuchregistrationorqualificationineffectinsuchjurisdiction;provided,however,thattheRegistrantshallnotberequiredtoqualifytodobusinessin,orconsenttogeneralserviceofprocessin,anyjurisdictionbyreasonofthisprovision.TheregistrationrightssetforthinthisSection9aresubjecttotheconditionthattheDesignatedHolder,shallprovidetheRegistrantwithsuchinformationwithrespecttosuchholder'sRegistrableSecurities,theplansforthedistributionthereof,andsuchotherinformationwithrespecttosuchholderas,inthereasonablejudgmentofcounselfortheRegistrant,isnecessarytoenabletheRegistranttoincludeinsuchregistrationstatementallmaterialfactsrequiredtobedisclosedwithrespecttoaregistrationthereunder.AregistrationeffectedunderthisSection9shallbeeffectedattheRegistrant'sexpense,exceptforunderwritingdiscountsandcommissionsandthefeesandtheexpensesofcounseltotheDesignatedHolder,andtheRegistrantshallprovidetotheunderwriterssuchdocumentation(includingcertificates,opinionsofcounseland"comfort"lettersfromauditorsasarecustomaryinconnectionwithunderwrittenpublicofferingsassuchunderwritersmayreasonablyrequire.Inconnectionwithanysuchregistration,thepartiesagree(i)toindemnifyeachotherandtheunderwritersinthecustomarymanner,(ii)toenterintoanunderwritingagreementin'formandsubstancecustomaryfortransactionsofsuchtypewiththeManagerandtheotherunderwritersparticipatinginsuchofferingand(iii)totakeallfurtheractionswhichshallbereasonablynecessarytoeffectsuchregistrationandsale(including,iftheManagerdeeinsitnecessary,participatinginroad-showpresentations).TheRegistrantshallbeentitledtoinclude(atitsexpense)additionalsharesofitscommonstockinaregistrationeffectedpursuanttothisSection9onlyifandtotheextenttheManagerdeterminesthatsuchinclusionwillnotadverselyaffecttheprospectsofsuccessofsuchoffering.,.10.ADJUSTMENTUPONCHANGESINCAPITALIZATION.WithoutlimitationtoanyrestrictionontheCompanycontainedinthisAgreementorintheExchangeAgreement,intheeventofanychangeinCompanyCommonStockbyreasonofstockdividends,splitups,mergers(other,thantheBindingShareExchanges),recapitalizations,combinations,exchangeofsharesorthelike,thetypeandnumberofsharesorsecuritiessubjecttotheCompanyOption,andthepurchasepricepershareprovidedinSection1,shallbeadjustedappropriatelytorestoretoBrooklynUnionitsrightshereunder,includingtherighttopurchasefromtheCompany(oritssuccessors)sharesofCompanyCommonStockrepresenting19.9/ooftheOutstandingCompanyCommonStockfortheaggregateExercisePricecalculatedasofthedateofthisAgreementasprovidedinSectionl.11.RESTRICTIVELEGENDS.EachcertificaterepresentingsliaresofCompanyCommonStockissuedtoBrooklynUnionhereunder,andBrooklynUnionShares,ifany,deliveredtotheCompanyataClosing,shallincludealegendinsubstantiallythefollowingform:4THESECURITIESREPRESENTEDBYTHISCERTIFICATEHAVENOTBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED,ANDMAYBEREOFFEREDORSOLDONLYIFSOREGISTEREDORIFANEXEMPTIONFROMSUCHREGISTRATIONISAVAILABLE.SUCHSECURITIESAREALSOSUBJECTTOADDITIONAL*RESTRICTIONSONTRANSFERASSETFORTHINTHEAMENDEDANDRESTATEDSTOCKB-7 OPTIONAGREEMENT,DATEDASOFJUNE.26,1997,ACOPYGFWHICHMAYBOBTAINEDFROMTHEISSUERUPONREQUEST.Itisunderstoodandagreedthat:(i)thereferencetotheresalerestrictionsofthe'SecuritiesActintheabovelegendsliallberemovedbydeliveryofsubstitutecertificates(s)withoutsuchreferenceifBrooklynUnionortheCompany,asthecasemaybe,shallhavedeliveredtotheotherpartyacopyofaletterfromthestaffoftheSecuritiesandExchangeCommission,oranopinionofcounsel,informandsubstancesatisfactoryto'theotherparty,totheeffectthat'uchlegendisnotrequiredforpurposesoftheSecuritiesAct;(ii)thereferencetotheprovisions'othisAgreementintheabovelegendshallberemovedbydeliveryofsubstitutecertificate(s)withoutsuchreferenceiftheshareshavebeensoldortransferredincompliancewiththeprovisionsofthisAgreementandundercircumstancesthatdonotrequiretheretentionofsuchreference;and(iii)'thelegendshallberemovedinitsentiretyiftheconditionsinthepiecedingclauses(i)and(ii)arebothsatisfied.Inaddition,suchcertificatesshallbearanyotherlegendasmayberequiredbylaw.Certificatesrepresentingsharessoldina'egisteredpublicofferingpursuanttoSection9shallnotberequiredtobearthelegendsetforthinSection11.12.BINDINGEFFECT;NOASSIGNMENT;NOTHIRD"PART'YBENEFICIARIES.ThisAgreementshallbebindinguponandinuretothebenefitofthepartiesheretoandth'eirrespectivesuccessorsandpermittedassigns.ExceptasexpresslyprovidedforinthisAgreement,neitherthisAgreemcntnortherightsortheobligationsofeitherpartyheretoare'assignable,exceptbyoperationoflaw,orwiththewrittenconsent'ftheotherparty.NothingcontainedinthisAgreement,expressorimplied,isintendedtoconferuponanypersonotherthanthepartiesheretoandtheirrespective,permittedassignsanyrightsorremediesofanynaturewhatsoeverbyreasonofthisAgreement.AnyRestrictedSharessoldbyapartyincompliancewiththeprovisionsofSection9shall,uponconsummationofsuchsale,befreeoftherestrictionsimposedwithrespecttosuchsharesbythisAgreement,unlessanduntilsuchpartyshallrepurchaseorotherwisebecomethebeneficialownerofsuchshares,andanytransferccofsuchsharesshallnotbeentitledtothcregistrationrightsofsuchparty.13.SPECIFICPERFORMANCE.ThepartiesrecognizeandagreethatifforanyreasonanyofthprovisionsofthisAgrccmentarenotperformedinaccordancewiththeirspecific.termsorareotherwisbreached,immediatealidirreparableharmorinjurywouldbecausedforwhichmoneydamageswouldnotbeanadcquatcremedy.Accordingly,eachpartyagreesthat,inadditiontootherremedies,thcotherpartyshallbeentitledtoaninjunctionrestraininganyviolationorthreatenedviolationoftheprovisionsofthisAgreement.Intheeventthatanyactionshouldbebroughtinequitytoenforcethepr'oyisionsofthcAgreement,ncithcrpartywillallege,andeachpartyherebywaivesthedefense,thatthereisadequateremedyatlaw.14.ENTIREAGREEMENT.This"Agreement,theBrooklynUnionStockOptionAgreement,theConfidentialityAgreemcntandtheExchangeAgreement(includingtheexhibitsandschedulesthereto)constitutetheentireagreementamongthepartieswithrespecttothesubjectRatterhereofandthereofandsupersedeallotherprior'agreementsandunders'tandings,bothwrittenandoral,amongthe'partiesoranyofthemwithrespe'cttothcsubjectmatterhereofandthereof.\15.FURTHERASSURANCES.Eachpartywillexecuteanddeliverallsuchfurtherdocumentsandinstrumentsandtakeallsuchfurtheractionasmaybcnecessaryinordertoconsummatethetransactionscontemplatedhereby.16.VALIDITY.TheinvalidityorunenforceabilityofanyprovisionsofthisagreementshallnotaffectthevalidityorenforceabilityoftheotherprovisionsofthisAgreement,whichshallremaininfullforceandeffect.IntheeventanycourtorothercompetentauthorityholdsanyprovisionsofthisAgreementtobenull,voidorunenforceable,thepartiesheretoshallnegotiateingoodfaiththeexec'utionanddeliveryofanamendmenttothisAgreementinorder,asnearlyaspossible,toeffectuate,totheextentpermittedbylaw,theintentofthepartiesheretowithrespecttosuchprovisionandtheeconomiceffectsthereof.Ifforanyreasonanysuchcourtorregulatoryagency'eterminesthatBrooklynUnionisnotpe'rmittedtoacquire,orthcCompanyisnotpermittedtorepurchasepursuantto.Section7,thefullnumberofsharesofCompanCommonStockprovidedinSection1hereof(as'thesamemaybeadjusted),itistheexpressintention~B-8 theCompanytoallowBrooklynUnionto'.acquire'ortorequiretheCompanytorepurchasesuchlesser'numberofsharesasmaybepeimissible,withoutanyamendmentormodificationhereof;Eachpartyagreesthat,shouldanycourtorothercompetentauthorityholdanyprovisionofthiyAgreementorparthereoftobenull,voidorunenforceable,ororderanypartytotakeany,actioninconsistentherewith,ornottakeanyactionrequiredhereiri,theotherpartyshallnotbeentitledtospecificperformanceofsuchprovisionorparthereofortoanyotherremedy,includingbutnotlimitedtomoneydamages,forbreachhereoforofany'therprovisionofthisAgreementorparthereofasth'eresultofsuchholdingororder.~lt17.NOTICES.Allnoticesandothercommunicationhereundershallbeinwritingandshallbedeemedgivenif(i)deliveredpersonally,or(ii)sentbyreputableovernightcourierservice,or(iii)telecopied(whichisconfirmed),or(iv)fiveday'safterbeingmailedbyregisteredorcertifiedniail(returnreceipt'request'ed)to'thepartiesatthefollowing'addresses(oratsuchotheraddressforapartyasshallbespecifiedbylikenotice):HfgA.IftoBrooklynUnion,to:TheBrooklynUnionGasCompanyOneMetroTechCenter"Brooklyn,NewYork11201-3850'ttention:ChiefExecutiveOfficerwithacopyto:Wachtell,Lipton,Rosen&Katz51West52ndStreetNewYork,NewYork10019Attention:SethA.KaplanB.IftotheCompany,to:LongIslandLightingCompany175EastOldCountyRoadHicksville,NewYork11801Attention:ChiefExecutiveOfficerwithacopyto:Kramer,Levin,Naftalis&Frankel919ThirdAvenueNewYork,NewYork10022Attention:ThomasE.Constance18.GOVERNINGLAW;CHOICEOFFORUM.ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkapplicabletoagreementsmadeandtobeperformedentirelywithinsuchStateandwithoutregardtoitschoiceoflawprinciples.Eachofthepartieshereto(a)consentstosubmititselftothepersonaljurisdictionofanyfederalcourtlocatedintheStateofNewYorkoranyNewYorkstatecourtintheeventanydisputearisesoutofthisAgreementoranyofthetransactionscontemplatedbythisagreement,(b)agreesthatitwillnotattempttodenyordefeatsuchpersonaljurisdictionbymotionorotherrequestforleavefromanysuchcourtand(c)agreesthatitwillnotbringanyactionrelatingtothisAgreementoranyofthetransactionscontemplatedbythisAgreementinanycourtotherthanafederalcourtsittingintheStateofNewYorkoraNewYorkstatecourt.19.INTERPRETATION.WhenareferenceismadeinthisAgreementtoaSectionsuchreferenceshallbetoaSectionofthisAgreementunlessotherwiseindicated.Wheneverthewords"include",t"includes"or"including"areusedinthisAgreement,theyshallbedeemedtobefollowedbythewords"withoutlimitation".ThedescriptiveheadingshereinareinsertedforconvenienceofreferenceonlyandarenotintendedtobepartofortoaffectthemeaningorinterpretationofthisAgreement.B-9 20.COUNTERPARTS.ThisAgreementmay.beexecutedintwocounterparts,eachofwhichshabedeemedtobeanoriginal,butbothofwhich,takentogether,shallconstituteoneandthesameinstrument.21.EXPENSES.Exceptasotherwiseexpressly'providedhereinorintheExchangeAgreement,allcostsandexpensesincurredinconnectionwiththetransactionscontemplatedby'hisAgreementshallbepaidbythepartyincurringsuchexpenses.22.AMENDMENTS;WAIVER.ThisAgreementmaybeamendedbythepartiesheretoandthetermsandconditionshereofmaybewaivedonlybyaninstrumentinwritingsignedonbehalfofeachofthepartieshereto,or,inthecaseofawaiver,byaninstrumentsignedonbehalfofthepartywaivingcompliance.J23.EXTENSIONOFTIMEPERIODS.ThetimeperiodsforexerciseofcertainrightsunderSections2,6and7shallbeextended:(i)totheextentnecessarytoobtainallregulatoryapprovalsfortheexerciseofsuchrights,andfortheexpirationofallstatutorywaitingperiods;and(ii)totheextentnecessarytoavoidanyliabilityunderSection16(b)oftheExchangeActbyreasonofsuchexercise.24.REPLACEMENTOFCOMPANYOPTION.UponreceiptbytheCompanyofevidencereasonablysatisfactorytoitoftheloss,theft,destructionormutilationofthisAgreement,and(inthecaseofloss,theftordestruction)ofreasonablysatisfactoryindemnification,anduponsurrenderandcancellationofthisAgreement,ifmutilated,theCompanywillexecuteanddeliveranewAgreementofliketenoranddate.B-10 INWITNESSWHEREOF,thepartiesheretohavecausedthisAgreementtobeexecutedbytheirrespectiveulyauthorizedofficersasofthedatefirstabovewritten.THEBROOKLYNUNIONGASCOMPANYBy(S/ROBERTB.CATELLName:RobertB.CatellTitle:ChiefExecutiveOfficerLONGISLANDLIGHTINGCOMPANYByi/S/WILLIAMJ.CATACOSINOSName:Dr.WilliamJ.CatacosinosTitle:ChiefExecutiveOfficer
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ANNEXCAMENDEDAND'RESTATED:BROOKLYNUNION.STOCKOPTION'AGREEMENT'MENDEDANDRESTATEDSTOCK'OPTION'GREEMENT,'date'd'asofJune'26,1997,byandbetween'ONGISLAND"LIGHTINGCOMPANY,a'ewYorkcorporatiori("LlLCO"),andTHEBROOKLYNUNIONGASCOMPANY,"aNew'orkcorporation(the"COMPANY").'WHEREAS,concurrentlywiththeexecutionaliddeliveryof,thisAgreemept,(i)LILCOandtheCompanyareenteringintoanAmendedandRestatedAgreementand,PlanofExchangeandMerger,datedasofthedatehereof,(asthesamemaybeamendedfromtimeto,time,the"EXCHANGEAGREEMENT"),whichprovides,amongotherthirigs,uponthetermsandsubjecttotheconditionsthereof,fortheexchangeofoutstandingsparesofcapitalstockofeachofLILCOandtheCompanyfornewly,,issuedsharesof.capitalstockof,.aJewYorkcorporationtobeformed(the"BINDINGSHAREEXCHANGES"),and(ii)theCompanyandLILCOareenteringintoacertainamendedandrestatedstockoptionagreementdatedasofthedatehereofwhere)yLILCOgrantstotheCompanyanoptionwithrespecttocertainsharesofQILCO'scommonstockonthe,termsandsubject,totheconditionssetforththerein(the"LILCOSTOCKOPTIONAGREEMENT")'WHEREAS,asa.,conditiontoLILCO'swillingnesstoenterintotheoriginal".Agreement.andPlanofExchangebyand.amongBrooklynUnion,LILCOand,NYECOCorp.,datedasofDecember29,1996,LILCOhasrequestedthattheCompanyagree,andtheCompanyhassoagreed,togranttoLILCO,aiioptionwithrespectto:certainsharesoftheCompany'scommonstock;ontheterinsandsubjecttotheconditionssetforthherein;and'HEREAS;thepartiesdesiretoiamendandrestatetHeoriginalBrooklynUnionStockOptionAgreementasofthedatehereoftoreflectthe'ExchangeAgreement.'tNOW,'THEREFORE,toinduce'LILCOtoenterintotheExchangeAgieement,and'in'consideratioriofthemutualcovenantsand'agreementssetforthhereinandintheExchangeAgreement',thepartieshereto'agreeasollows:1.'GRANTOF"OPTION.TheCompanyhereb'ygrantsL'ILCOanirrevocableoption(the"COMPANYOPTION")topurchaseupto'9,948,682shares,subject'toadjustmentasprovidedinSection10(suchsharesbeing'referredtohereinasthe"COMIANYSHARES")"ofcommonstock,parvalue,$.33Spershare,oftheComp'any(the"COMPANYC6MMON'STOCK")(beirig19.9%%uoofthenumberofshares,ofCompanyCommonStockoutstandingon'thedatehereof)inthemannersetforthbelowataprice(the'"EXERCISEPRICE")perCompanySliareof$30.0375(whichisequaltotheFairMarketValue(asdefinedbelow)ofa'CompanyShareonthe'datehereof)payable,atLII.CO'soption,(a)incashor(b)"subjecttotheCompany'shavingobtainedtheapprovals"ofanyGovernment'alAuthorityrequired,fortheCompanytoacquiretheLILCOShares(asdefinedbelow)fromLILCO,whichapprovalstheCompanyshall'sebesteffortstoobtain,insharesof'commonStock,parvalue$5.00,'.per'share,'ofLILCO("LILCO.SHARES")ineithercaseinaccordancewith5ection"4hereof.Notwithstanding'heforegoing,in:noevent'h'all.tlienumberof'CompanySharesforWhichtheCompanyOptionisexercisableexceed19;9%'ofthenlimbe'r=ifissuedandoutstandingsharesofCompanyCommonSto'ck.As'usedherein,'the-'FAIR'MARKETVALUE"ofanyShareshallbetheaverageofth'edailyclosingsalespriceforsuchshareontheNew'orkStockExchange(the"NYSE'~)durihgthe10NYSEtradingdayspriorto'tliefifthNYSEtradingdaypreceding'th'edatesuchFairMarketValueistobedetermined:Capitalizedteimsu'sed'heiein'butnot'defined'hereinshallhavethe'mhanfngsset'forthinthe'ExchangeAgreement:2.EXERCISEOFOPTION."TheCompariyOption'maybeexercisedb'yLILCO,'inwholeorinpart,a'tanytimeorfrom'imetotimeafter'theExchangeAgreementbecomesterminableby'ILCO'nder'Circumstances'whichcould'entitleLILCOtotermiriationfeesu'nder'itherSection'9.3(a)of'theExchangeAgreement(providedoaftheeventsspecifiedinSection9.3(a)(ii)(x)'oftheExchange'Agreeinentshallhaveoccurred,althoughtheeventsspecifiedinSection9.3(a)(ii)(y)thereofneednot'haveoccuried)orSection9.3(b)oftheExchangeAgreement(regardlessofwhethertheExchangeAgreementis'ctu'allyterminated..or,whether,thereoccurs'aclosingofanyBusinessCombinationinvolvinga'TargetPartyoraclosingbywhichaTargetPartybecomesasubsidiary),anysucheventbywhichtheExchangeAgreementbecomessoC-1 terminablebyLILCObeingreferredtohereinasa"TRIGGEREVENT."TheCompanyshallnotifyLILCOpromptlyinwritingoftheoccurrence'f'an'yTrigger.Event,itbeingunderstoodthatthegivingofsuchnoticebytheCompanyshallnotbeaconditiontotherightofLILCOtoexercisetheCompanyOption.Intheevent.LILCOwishes.toexercisetheCompanyOption,LILCOshalldelivertotheCompanyawrittennotice(an"EXERCISENOTICE"),SpecifyingthetotalnumberofCompanySharesitwishestopurchase.EachclosingofapurchaseofCompanyShares(a"CLOSING")shalloccurataplace,onadateandatatimedesignatedbyLILCOinanExerciseNoticedeliveredatleasttwobusinessdayspriortothedateoftheClosing.TheCompanyOptionshallterminateupon'theearlier'f:(i)theEffectiveTime;(ii)theterminationoftheExchangeA'greementpursuanttoSection91thereof(other'thanuponorduringthecontinuanceofaTriggerEvent);or(iii)180daysfollowinganyterminationoftheExchangeAgreementuponorduringthecontinuanceofaTriggerEvent(orif,attheexpirationofsuch180dayperiodtheCompanyOptioncannotbeexercisedbyreasonofanyapplicablejudgment,decree,order,laworregulation,10business'daysaftersuchimpedimenttoexerciseshallhavebeenremovedorshallhavebecomefinalandnotsubjecttoappeal,butinnoeventunderthisclause(iii)laterthanApril28,1999).Notwithstandingtheforegoing,theCompanyOptionmaynotbeexercisedifLOCOisinmaterialbreachofanyofitsmaterialrepresentationsofwarranties,orinmaterialbreachofanyofitscovenantsoragreements,containedin,thisAgreementorintheExchangeAgreement.UponthegivingbyLILCOtotheCompanyoftheExerciseNoticeandthetenderoftheapplicableaggregateExercisePrice,LILCOshallbedeemedtobetheholderofrecordoftheCompanySharesissuableuponsuchexercise,notwithstandingthatthestocktransferbooksoftheCompanyshallthenbeclosedorthatcertificatesrepresentingsuchCompanySharesshallnotthenbeactuallydeliveredtoLILCO.3.CONDITIONSTOCLOSING.,Theobligationofthe-CompanytoissuetheCompanySharestoLILCOhereunderissubjecttotheconditions,which(otherthantheconditionsdescribedinclauses(i),(iii)and(iv)below)maybewaivedbytheCompanyinitssolediscretion,that(i)allwaitingperiods,ifany,undertheHSRAct,applicableto.theissuanceoftheCompanyShareshereundershallhaveexpiredorhavebeenterminated;(ii)theCompanyShares,andanyLILCOShareswhichareissuedinpaymentoftheExercisePrice,shallhavebeenapprovedforlistingontheNYSEuponofficialnoticeofissuance;(iii)alconsents,approvals,ordersorauthorizationsof,,orregistrations,declarationsorfilingswith,anyfederal,stateorlocaladministrativeagencyorcommissionorotherfederal,stateorlocalGovernmentalAuthority,ifany,requiredinconnectionwiththeissuanceofthecompanyShareshereundershallhavebeenobtainedormade,asthecasemaybe,including,withoutlimitation,ifapplicable,theapprovaloftheSECunderSection10ofthe1935ActoftheacquisitionoftheCompanySharesbyLILCOand,ifapplicable,theacquisitionbytheCompanyoftheL'ILCOSharesconstitutingtheExercisePricehereunder;and(iv)nopreliminaryorpermanentinjunctionorotherorderbyanycourtofcompetentjurisdictionprohibitingorotherwiserestrainingsuchissuanceshallbeineffect.4.CLOSING.AtanyClosing,(a)theCompanywilldelivertoLILCOoritsdesigneeasinglecertificateindefinitiveformrepresentingthenumberoftheCompanySharesdesignatedbyLILCO.initsExerciseNotice,suchcertificatetoberegisteredinthenameofLILCOandtobearthelegendsetforthinSection11,and(b)LILCOwilldeliver,totheCompanytheaggregatepriceforthe.CompanySharessodesignatedandbeingpurchasedby(i)wiretransferofimmediatelyavailablefundsorcertifiedcheckorbankcheckor(ii)subjecttotheconditioninSection1(b),acertificateorcertificates,representingthenumberofLILCOSharesbeingissuedbyLILCOinconsiderationthereof,as,thecasemaybe.ForthepurposesofthisAgreement,thenumberofJ.ILCOSharestobedeliveredtotheCompanyshallbeequaltothequotientobtained,bydividing(i)theproductof(x),thenumberofCompanyShareswithrespecttowhichtheCompanyOptionisbeingexercisedand(y)theExercisePriceby(ii)theFairMarketValueoftheLILCOSharesonthedateimmediatelyprecedingthedatetheExerciseNoticeisdeliveredtotheCompany.TheCompanyshallpayallexpenses,andanyandallUnitedStates,federal,stateandlocaltaxesandotherchargesthat.maybepayableinconnectionwiththepreparation,issueanddeliveryofstockcertificatesunder,thisSection4inthenameofLILCOoritsdesignee.5.REPRESENTATIONSANDWARRANTIESOFTHECOMPANY.TheCompanyrepresentandwarrantstoLILCOthat(a)exceptassetforthinSection4.1oftheBrooklynUnionDisclosuC-2 Schedule,theCompanyisacorporationdulyorganized,validlyexisting-andinactivestatusunderthelawsoftheStateofNewYorkandhasthecorporatepowerandauthoritytoenterintothisAgreementand,~subjecttoobtainingtheapplicableapp'rovalofshareholdersoftheCompanyfortherepurchaseofCompanySharespursuanttoSection7(a)belowundercircumstancesphereSection513(e)oftheNYBCLwouldbeapplicable(the"BUYBACKAPPROVALS")andsubjectto-anyregulatoryapprovalsreferredtohereinandtotheprovisionsofSection513(a)oftheNYBCL,ifapplicable,tocarryoutitsobligationshereunder,,(b)theexecutionanddeliveryofthisAgreementbytheCompanyandtheconsummationbytheCompanyofthetransactionscontemplatedherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartoftheCompanyandnoothercorporateproceedingsonthepartoftheCompanyarenecessarytoauthorizethisAgreementoranyofthetransactionscontemplatedhereby(otherthananyrequiredBuybackApprovals),(c)suchcorporateaction(includingtheapprovaLoftheBoardofDirectorsoftheCompany)isintendedtorenderinapplicabletothisAgreementandtheExchangeAgreementandthetransactions.contemplatedherebyandthereby,theprovisionsofthe.NYBCLreferredtoinSection4.15oftheExchangeAgreement,(d)thisAgreementhasbeendulyexecutedanddeliveredbytheCompany,constitutesavalidandbindingobligationoftheCompanyand,assumingthisAgreementconstitutesavalidandbindingobligationofLILCO,isenforceableagainsttheCompanyinaccordancewithitsterms,(e)theCompanyhastakenallnecessarycorporateactiontoauthorizeandreserveforissuanceandtopermitittoissue,uponexerciseoftheCompanyOption,andatalltimesfromthedatehereofthroughtheexpirationoftheCompanyOptionwillhavereserved,9,948,682authorizedandunissuedCompanyShares,suchamountbeingsubjecttoadjustmentasprovidedinSection10,allof,which,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fullypaidandnonassessable,(f)upondeliveryoftheCompanySharestoLILCOupontheexerciseoftheCompanyOption,LILCOwillacquiretheCompanySharesfreeandclearofallclaims,liens,charges,encumbrancesandsecurityinterestsofanynaturewhatsoever,(g)exceptasdescribedinSection4.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbytheCompanydoesnot,andtheconsummationbytheCompanyofthetransactionscontemplatedherebywillnot,violate,conflictwith,orresultinabreachof:anyprovisionof,oreconstituteadefault,(withorwithoutnoticeorlapseoftime,orboth)under,orresultintheterminationof,oracceleratetheperformancerequiredby,orresultinarightoftermination,cancellation,oraccelerationofanyobligationorthelossofamaterialbenefitunder,orthecreationofalien,,pledge,securityinterestorotherencumbranceonassets(anysuchconflict,'violation,default,rightof,termination,cancellationoracceleration,lossor,creation,a"VIOLATION")oftheCompanyoranyofitssubsidiaries,pursuantto,(A)anyprovisionofthecertificatofincorporationorby-lawsoftheCompany,(B)any,provisionsofanyloanorcreditagreement,note,mortgage,indenture,lease,;Companybenefitplanorotheragreement,obligation,instrument,permit,concession,franchise,licenseor(C)anyjudgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletotheCompanyoritspropertiesorassets,whichViolation,inthecaseofeachofclauses(B)and(C),couldreasonablybeexpectedtohaveamaterialadverseeffectontheCompanyanditssubsidiariestakenasawhole,(h)exceptasdescribedinSection4.4(c)oftheExchangeAgreementorSection1(b)orSection3hereof,the'executionanddeliveryofthisAgreementbytheCompanydoesnot,andtheperformanceofthisAgreementbytheCompanywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthority,(i)noneoftheCompany,anyofitsaffiliatesoranyone"actingonitsortheirbehalfhasissued,soldorofferedanysecurityoftheCompanytoanypersonundercircumstancesthatwouldcausetheissuanceandsaleoftheCompanyShares,ascontemplatedbythisAgreement,tobesubjecttotheregistrationrequirementsoftheSecuritiesActasineffectonthedatehereofand,assumingtherepresentationsofLILCO"containedinSection6(h)aretrueandcorrect,theissuance,saleanddeliveryoftheCompanyShareshereunderwouldbeexemptfromtheregistrationandprospectusdeliveryrequirementsoftheSecuritiesAct,asineffectonthedatehereof(andtheCompanyshallnottakeanyactionwhichwouldcausetheissuance,saleanddeliveryoftheCompanyShareshereundernottobeexemptfromsuchrequirements),and(j)anyLILCOSharesacquiredpursuanttothisAgreementwillbeacquiredfortheCompany'sownaccount,forinvestmentpurposesonlyandwillnotbeacquiredbytheCompanywithaviewtothepublicdistributionthereofintviolationofanyapplicableprovisionoftheSecuritiesAct.C-3 6.REPRESENTATIONSANDWARRANTIESOFLILCO.LILCOrepresentsandwarrantstothCompanythat(a)LILCOisacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsoftheStateofNewYorkandhasthecorporatepowerandauthoritytoenterintothisAgreementandtocarryoutitsobligationshereunder,(b)theexecutionanddeliveryofthisAgreementbyLILCOandtheconsummationbyLILCOofthetransactions,contemplatedherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofLILCOandnoothercorporateproceedingsonthepartofLILCO"arenecessarytoauthorizethisAgreementor'nyofthetransactionscontemplatedhereby,(c)thisAgreementhasbeendulyexecutedanddeliveredbyLILCOandconstitutesavalidandbindingobligationofLILCO,and,assumingthisAgreementconstitutesavalidandbindingobligationoftheCompany,is.enforceableagainstLILCOinaccordancewithitsterms,(d)priortoanydeliveryofLILCOSharesinconsiderationofthepurchaseofCompanySharespursuanthereto,LILCOwillhavetakenallnecessarycorporateactiontoauthorizeforissuanceandtopermitittoissuesuchLILCOShares,allofwhich,upontheirissuanceanddeliveryinaccordancewiththetermsofthisAgreement,willbevalidlyissued,fully'paidandnonassessable,andtorenderinapplicabletothereceipt,bytheCompanyoftheLILCOSharestheprovisionsoftheNYBCLreferredtoinSection5.15oftheExchangeAgreement,(e)uponanydeliveryofsuchLILCOSharestotheCompanyinconsiderationofthepurchaseofCompanySharespursuanthereto,theCompanywillacquiretheLILCOSharesfreeandclearofallclaims,liens,charges,encumbrancesandsecurityinterestsofanynaturewhatsoever,(f)exceptasdescribedinSection5.4(b)oftheExchangeAgreement,theexecutionanddeliveryofthisAgreementbyLILCOdoesnot,andtheconsummationbyLILCOofthetransactionscontemplatedherebywillnot,violate,conflictwith,orresultinthebreachofanyprovisionof,orconstituteadefault(withorwithoutnoticeorlapseoftime,orboth)under,orresultinanyViolationbyLILCOoranyofitssubsidiaries,pursuantto(A)anyprovisionofthecertificateofincorporationorby-lawsofLILCO,(B)anyprovisionsofanyloanorcreditagreement;note,mortgage,indenture,lease,LILCObenefitplanorotheragreement,obligation,instrument,permit,concession,franchise,licenseor(C)any'judgment,order,decree,statute,law,ordinance,ruleorregulationapplicabletoLILCOoritspropertiesorassets,whichViolation,inthecaseofeachofitsclauses(B)and/or(C),wouldhaveamaterialadverseeffectonLILCOanditssubsidiariestakenasawhole,(g)exceptasdescribedi~Section5.4(c)oftheExchangeAgreementorSection1(b)orSection3hereof,theexecutionanddeliver~ofthisAgreementbyLILCOdoesnot,andtheconsummationbyLILCOofthetransactionscontemplatedherebywillnot,requireanyconsent,approval,authorizationorpermitof,orfilingwithornotificationto,anyGovernmentalAuthorityand(h)anyCompanySharesacquireduponexerciseoftheCompanyOptionwillbeacquiredforLILCO'sownaccount,forinvestmentpurposesonlyandwillnotbe,andtheCompanyOptionisnotbeing,acquiredbyLILCOwithaviewtothepublicdistributionthereofinviolationofanyapplicableprovisionoftheSecuritiesAct.;7.CERTAINREPURCHASES.(a)LILCOPUT.AttherequestofLILCObywrittennoticeatanytimeduringwhichtheCompanyOptionisexercisablepursuanttoSection2(the"REPURCHASEPERIOD"),theCompany(oranysuccessorentitythereof)shallrepurchasefromLILCOalloranyportionoftheCompany,Option,atthepricesetforthinsubparagraph(i)below,or,attherequestofLILCObywrittennoticeatanytimepriortoAugust31,1998(providedthatsuchdateshallbeextendedtoApril28,1999underthecircumstanceswherethedateafterwhicheitherpartymayterminatetheExchangeAgreementpursuanttoSection9.1(b)oftheExchangeAgreementhasbeenextendedtoApril28,1999),theCompany(oranysuccessorentitythereof)shallrepurchasefromLILCOalloranyportionoftheCompanySharespurchasedbyLILCOpursuanttotheCompanyOption,atthepricesetforthinsubparagraph(ii)below:(i)thedifferencebetweenthe"MARKET/OFFERPRICE"forsharesofCompanyCommonStockasofthedateLILCOgivesnoticeofitsintenttoexerciseitsrightsunderthisSection7(definedasthehigherof(A)thepricepershareofferedasofsuch'datepursuanttoanytenderorexchangeofferorotherofferwithrespecttoaBusinessCombinationwhichwasmadepriortosuchdateandnotterminatedorwithdrawnasofsuchdate(the"OFFERPRICE")a(B)theFairMarketValueofCompanyCommonStockasofsuchdate(the"MARC-4
-...">'.PRICE"))and'the'ExercisePrice,,multipliedbythenumber,ofCompany'Sharespurchasablepursuantto>>theCompanyOption(orportionthereofwithrespect'towhichLILCOisexercisingitsrightsunderthisSection7),butonly,iftheMarket/OfferPriceisgreaterthantheExercise*~~,.>>>>kk.III,(ii)theproductof(x)thesumof>>(A)theExercisePricepaidbyLILCOperCompanySharekacquiiedpursuanttotheCompanyOptionand(B)thedifferencebetweentheMarket/OfferPriceandtheExercisePrice,butonlyifthe.,Market/OfferPriceisgreater,than>>theExercisePrice,and;(y),thenumberofCompanySharestoberepurchasedpursuantto,thisSection7.Forpurposesofthisclause(ii),theOffer.Price.shallbethehighestpricepershareofferedpursuanttoatenderorexchangeofferorother.BusinessCombinationoffei;duringtheRepurchasePeriodpriortothedelivery,byLILCOofanoticeofrepurchase.(b)REDELIVERYOF,LILCOSHARES.If>>LILCOelectedtopurchase;Company.Sharespursuantto,the-exerciseoftheCompanyOptionbytheissuanceanddelivery,,ofLILCOShares;then.~'theCompanyshall,ifsorequestedbyJ.ILCO,in.fulfil/mentofitsobligation>>pursuant;toclause,(a)of,,;..Qectiqp.7(a)(ii)(x)(that,iqwitll,respecttotheExercisePriceonly,and,withoutlimitationttoits,,-~obligationtopayadditional,consideration,underclause,(b)ofSection7(a)(ii)(x)),redeliverthecertificateforsuch.LILCO,Shares,to.LILCO,freeandclearofallliens,claims;damages,.chargesand.encumbrances,ofany.kind,ornatureiyhatsqever;provided,however,thatiflessthan.alloftheCompanySharesyprchased.byLILCOpursuanttothe,Company,Optionaretoberepurchasedpursuant.,tothiy,Section,7;,thenLILCO,shallissuetotheCompanyanewcertificaterepresentingthoseLILCO;..ShareswhichareInot;duetoberedeJivered,toLILCOpursuantto,.thiySection7astheyconstitutedpaymentoftheExercise,,PricefortheCompany,',Shares,notbeing,repurchased.(c)PAYMENTANDREDELIVERY;"OI>>COMPANYOPTION,ORSHARES..Intheevent.'.LILCOexercisesitsrights'underthisSection7,theCompanyshall,within10,businessdaysthereafter,epay,thet>>equiredamounttoLILCOinimmediatelyavailable.fundsandLILCOshallsurrendertothe,CompanytheCompany,OptionorthecertificatesevidencingtheCompanySharespurchasedbyLILCO-pursuanttheretoandLILCOsha]1warrant.that,itownstheCompanyOptioqorsuch.sharesandthat,;,theCompany,.Optionor,suchsharesarethenfreeandclear,ofalfliens,claims,damages,,chargesand,encumbrances,ofanykindornaturewhatsoever.;(d)LILCOCALL.kIfLILCOhaselectedtopurchaseCompanyShares'pursuanttotheeXerciseof'the'Company,Optiohby-theissuance'anddeliveryofLILCOShares,notwithstandingthat,LILCO<<".maynolongerholdanysuchCompanySharesor,thatLILCOelects,notto>>exerciseitsotherrights..underthisSection,.7,LILCOmay,require;,atanytimeorfromtimeto,time.priortoAugust31,1998(providedthatsuchdateshallbeextended'toApril28,1999under.,thecircumstanceswherethedateafter,whicheitherpartymayterminatetheExchangeAgreementpursuanttoSection9.l,(b)oftheExchangeAgreementhasbeenextendedto,,April28,1999),theCompanytoselltoLILCOanysuchLILCOSharesattheFairMarket''Value'thathadbeenattributedtosuchLILCOShamspursuantto,Section4plusinterestattherateof6>>5%perannumonsuchamountfromtheClosingDateielatingtoth'eexchangeofs'uchLII.COShares'pursuanttoSection4totheclosingdateundeithisSection7(d)"lessanydividends.on'suchLILC6Shkare'spaid'duringsuch'eriodordeciaiedan'd'Ii'ayabletostockholdersofrecordo'na'date,Juriiigsuchperiod.(e),REPURCPPSE,,PRICE,REDUCEDATLILCO'SOPTION,In,the,event.the.repurchase..pricespecifiedin)ection7(a)wouldsubjectthepurchaseoftheCompanyOptionortheCompanySharespurchasedbyLILCOpursuanttotheCompany.Optiontoavoteoftheshareholdersofthe,CompanypursuanttoSection513(e)oftheNYBCL,thenLILCOmay,atitselection,reducetherepurchasepricetoanamountwhichwouldpermitsuchrepurchasewithoutthenecessityforsucha'hareholdervote.kJT1(,,.-8,,RESTRICTIONSONTRANSFER.>>(a)RESTRICTIONSONTRANSFER.'Priortothe'ExpirationDate,neitherpartyshall,"directly-orindirectly;byopera'tionoflawor'otherwise,sell,assign;pledge,orotherwisedispose,ofortransferC-5 anysharesofcapitalstockoftheotherpartyacquiredbysuchpartypursuanttothisAgreement("RestrictedShares")andbeneficiallyownedbysuchparty,otherthan(i)pursuanttoSection7,or(ii)inaccordancewithSection8(b)orSection9.(b)PERMITTEDSALES.FollowingtheterminationoftheExchangeAgreement,apartyshallbepermittedtosellanyRestrictedSharesbeneficiallyownedbyitifsuchsaleismadepursuanttoatenderorexchangeofferthathasbeenapprovedorrecommended,orotherwisedeterminedtobefairtoandinthebestinterestsoftheshareholdersoftheotherparty,byamajorityofthemembersoftheBoardofDirectorsofsuchotherpartywhichmajorityshallincludeamajorityofdirectorswhoweredirectorspriortotheannouncementofsuchtenderorexchangeoffer.9.REGISTRATIONRIGHTS.FollowingtheterminationoftheExchangeAgreement,eachpartyhereto(a"DESIGNATEDHOLDER")maybywrittennotice(the"REGISTRATIONNOTICE")totheotherparty(the"REGISTRANT")requesttheRegistrantto'registerundertheSecuritiesActalloranypartofthe'RestrictedSharesbeneficiallyownedbysuchDesignatedHolder(the"REGISTRABLESECURITIES")pursuanttoabonafidefirmcommitmentunderwrittenpublicofferinginwhichtheDesignatedHolderandtheunderwritersshalleffectaswideadistributionofsuchRegistrableSecuritiesasisreasonablypracticableandshallusetheirbesteffortstopreventanyperson(includinganyGroup(asusedinRule13d-5undertheExchangeAct))anditsaffiliatesformpurchasingthroughsuchofferingRestrictedSharesrepresentingmorethan1%oftheoutstandingsharesofcommonstockoftheRegistrantonafullydilutedbasis(a"PERMIITEDOFFERING").TheRegistrationNoticeshallincludeacertificateexecutedbytheDesignatedHolderanditsproposedmanagingunderwriter,whichunderwritershallbeaninvestmentbankingfirmofnationallyrecognizedstanding(the"MANAGER"),statingthat(i)theyhaveagoodfaithintentiontocommencepromptlyaPermittedOfferingand(ii)theManageringoodfaithbelievesthat,basedonthethenprevailingmarketconditions,itwillbeabletoselltheRegistrableSecuritiesatapersharepriceequaltoatleast80%ofthethenFairMarketValueofsuchshares.TheRegistrant(and/orany'ersondesignatedbytheRegistrant)shallthereuponhavetheoptionexercisablebywrittennoticedeliveredtotheDesignatedHolderwithin10businessdaysafterthereceiptoftlieRegistrationNotice,irrevocablytagreetopurchasealloranypartoftheRegistrableSecuritiesproposedtobesosoldforcashataprice(th"OPTIONPRICE")equaltotheproductof(i)thenumberofRegistrableSecuritiestobesopurchasedbytheRegistrantand(ii)thethenFairMarketValueofsuchshares.'Anysuchpurchase'ofRegistrableSecuritiesbytheRegistrant(oritsdesignee)hereundershalltakeplaceataclosingtobeheldattheprincipalexecutiveofficesoftheRegistrantorattheofficesofitscounselatanyreasonabledateandtimedesignatedbytheRegistrantand/orsuchdesigneeinkuchnoticewithin20businessdaysafterdeliveryofsuchnotice.AnypaymentforthesharestobepurchasedshallbemadebydeliveryatthetimeofsuchclosingoftheOptionPriceinimmediatelyavailablefunds.IftheRegistrantdoesnotelecttoexerciseitsoptionpursuanttothisSection9withrespecttoallRegistrableSecurities,itshalluseitsbesteffortstoeffect,aspromptlyaspracticable,theregistrationundertheSecuritiesActoftheunpurchasedRegistrableSecuritiesproposedtobesosold;provided,however,that(i)neitherpartyshallbeentitledtomorethananaggregateoftwoeffectiveregistrationstatementshereunderand(ii)theRegistrantwillnotberequiredtofileanysuchregistrationstatementduringanyperiodoftime(nottoexceed40daysaftersuchrequestinthecaseofclause(A)belowor90daysinthecaseofclauses(B)and(C)below)when(A)theRegistrantisinpossessionofmaterialnon-publicinformationwhichitreasonablybelieveswouldbedetrimentaltobedisclosedatsuchtimeand,"intheopinionofcounseltotheRegistrant,suchinformationwouldhavetobedisclosedifaregistrationstatementwerefiledatthattime;(B)theRegistrantisrequiredundertheSecuritiesActtoincludeauditedfinancialstatementsforanyperiodinsuchregistrationstatementandsuchfinancialstatementsarenotyetavailableforinclusioninsuchregistrationstatement;or(C)theRegistrantdetermines,initsreasonablejudgment,thatsuchregistrationwouldinterferewithanyfinancing,acquisitionorothermaterialtransactioninvolvingtheRegistrantoranyofitsaffiliates.TheRegistrantshalluseitsreasonablebesteffortstocauseanyRegistrableSecuritiesregisteredpursuanttothisSection9tobequalifiedforsaleunderthesecuritiesorBlue-SkylawsofsucjurisdictionsastheDesignatedHoldermayreasonablyrequestandshallcontinuesuchregistrationC-6 equalificationineffectinsuchjurisdiction;provided,however,thattheRegistrantshallnotberequiredtoqualifytodobusinessin,orconsenttogeneralserviceofprocessin,anyjurisdictionbyreasonofthisprovision.TheregistrationrightssetforthinthisSection9aresubjecttotheconditionthattheDesignatedHoldershallprovidetheRegistrantwithsuchinformationwithrespecttosuchholder'sRegistrableSecurities,theplansforthedistributionthereof,andsuchother.informationwithrespecttosuchholderas,inthereasonablejudgmentofcounselfortheRegistrant,isnecessarytoenabletheRegistranttoincludeinsuchregistrationstatementallmaterialfactsrequiredtobedisclosedwithrespecttoaregistrationthereunder.AregistrationeffectedunderthisSection9shallbeeffectedattheRegistrant'sexpense,exceptfor,underwritingdiscountsandcommissionsandthefeesandtheexpensesofcounseltotheDesignatedHolder,andthe,Registrantshallprovidetotheunderwriterssuchdocumentation(includingcertificates,opinionsofcounseland"comfort"lettersfromauditorsasarecustomaryinconnectionwithunderwrittenpublicofferingsassuchunderwritersmayreasonablyrequire.Inconnectionwithanysuchregistration,thepartiesagree(i)toindemnifyeachotherandtheunderwritersinthecustomarymanner,(ii)toenterintoanunderwritingagreementinformandsubstancecustomaryfortransactionsofsuchtypewiththeManagerandtheotherunderwritersparticipatinginsuchoffeiingand(iii)totakeallfurtheractionswhichshallbereasonablynecessarytoeffectsuchregistrationandsale(including,iftheManagerdeemsitnecessary,participatinginroad-showpresentations).III,TheRegistrantshallbeentitledtoinclude(atitsexpense)additionalsharesofitscommonstockinaregistrationeffectedpursuanttothisSection9onlyifandtotheextenttheManagerdeterminesthatsuchinclusionwillnotadverselyaffecttheprospectsofsuccessofsuchoffering.10.ADJUSTMENTUPONCHANGESINCAPITALIZATION.WithoutlimitationtoanyrestrictionontheCompanycontainedinthisAgreementorintheExchangeAgreement,intheeventofanychangeinCompanyCommonStockbyreasonofstockdividends,splitups,mergers(otherthantheBindingShareExchanges),recapitalizations,combinations,exchangeofsharesorthelike,thetypeandnumberofsharesorsecuritiessubjecttotheCompanyOption,andthepurchasepricepershareprovidedinSection1,shallbeadjustedappropriatelytorestoretoLILCOitsrightshereunder,includingtherighttopurchasefromtheCompany(oritssuccessors)sharesofCompanyCommonStockrepresenting19.9%oftheOutstandingCompany'o'inmonStockfor'theaggregateExercisePricecalculatedasofthedate'ofthisAgreementasprovidedinSectionl.11.RESTRICTIVELEGENDS.EachcertificaterepresentingsharesofCompanyCommonStockissuedtoLILCOhereunder,andLILCOShares,ifany,deliveredtotheCompanyataClosing,shallincludealegendinsubstantiallythefollowingform:.THESECURITIESREPRESENTEDBYTHISCERTIFICATEHAVENOTBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED,ANDMAYBEREOFFEREDORSOLDONLYIFSOREGISTEREDORIFANEXEMPTIONFROMSUCHREGISTRATIONISAVAILABLE.SUCHSECURITIESAREALSOSUBJECTTOADDITIONALRESTRICTIONSONTRANSFERASSETFORTHINTHEAMENDEDANDRESTATEDSTOCKOPTIONAGREEMENT,DATEDASOFJUNE16,1997,ACOPYOFWHICHMAYBE,OBTAINEDFROMTHEISSUERUPGNREQUEST.Itisunderstoodandagreedthat:(i)thereferencefotheresalerestrictionsoftheSecuritiesActintheabovelegendshallberemovedbydeliveryofsubstituteceitificates(s)withoutsuchreferenceifLILCOortheCompany,asthecasemaybe,shallhavedeliveredtotheotherpartyacopyofaletterfromthestaffoftheSecuritiesandExchangeCommission,oranopinionofcounsel,informandsubstancesatisfactorytotheotherparty,totheeffect'thatsuchlegen'disnotrequiredforpurposesoftheSecuritiesAct;(ii)theereferencetotheprovisionstothisAgreementintheabovelegendshallberemovedbydeliveryofsubstitute'certificate(s)withoutsuchreferenceiftheshareshavebeensoldortransferredincompliancewiththeprovisionsofthisAgreement-andundercircumstancesthatdonotrequiretheretentionofsuchreference;C-7
,,and(iii)thelegendshallberemovedinitsentiretyiftheconditionsintheprecedingclauses(i)and(ii)arebothsatisfied.Inaddition,such,certificatesshallbearany,otherlegendasmayberequiredby,law.CertificatesrepresentingsharessoldinaregisteredpublicofferingpursuanttoSection9,shallnotberequiredtobearthelegendsetforthinSection11iIt*W,ly"IV(,12.,BINDINGEFFECT;NOASSIGNMENT;NO,THIRDPARTYBENEFICIARIES.ThisAgreementshallbebindinguponandinuretothebenefitofthepartiesheretoandtheirrespectivesuccessors,=.andpermittedassigns.ExceptasexpresslyprovidedforinthisAgreement,neitherthisAgreementnortherightsortheobligationsofeitherpartyheretoareassignable,exceptbyoperationoflaw,orwiththewrittenconsentoftheotherparty.NothingcontainedinthisAgreement,expressorimplied,isintendedtoconferuponanypersonotherthanthepartieshenetoandtheirrespectivepermitted'assignsanyrightsorremedies'ofany'naturewhatsoeverbyreasonofthisAgreement.AnyRestrictedSharessoldbyapartyincompliancewiththeprovisions'ofSection9shall,uponconsummationofsuchsale,befreeoftherestrictionsimposed'ith're'specttosuchshares'bythisAgr'cement,unlessanduntilsuchpartyshallrepurchaseoi'otherwise'becomethe'beneficialownerofs'uchshares,andanytransfereeofsuch"'shares'hall'notbeentitledtotheregistrationrightsofsuchparty.'~'3.SPECIFICPERFORMANCE.ThepartiesrecognizeandagreethatifforanyreasonanyoftheprovisionsofthisAgreementarenotperformedinaccordancewiththeirspecifictermsorareotherwisebreached,immediateandirreparableharmorinjurywouldbecausedforwhichmoneydamageswouldnotbeanadequateremedy.Accordingly,eachpartyagreesthat,inadditiontootherremedies,theotherpartyshall'beentitledtoaninjunctionrestraininganyviolation'orthreatenedviolation'ofthe'provisionsofthis"'Agreement.'nthe'eventthatanyaction'houldbebroughtinequitytoenforcetheprovisionsoftheAgreement,neitherpartywillalleg'e,'ndeachpartyherebywaivesthedefense,thatthere's'adequateremedyat,law.'14.ENTIREAGREEMENTThisAgreement,'theLILCOStockOptionAgreement,the'CorifidentialityAgreementandtheExchangeAgreement(includingtheexhibitsandschedulesthereto)'onstitutetheeritireagreementamongthepartieswithrespecttothe'subjectmatterhereofandthereofansupersedeallotherprioragreementsandunderstandings,bothwrittenandoral,amongthe'partiesoranyofthemwithrespecttothesubjectmatter'hereofandthereof.15.FURTHERASSURANCES.Eachpartywillexecuteanddeliverallsuchfurtherdocumentsandinstrumentsandtakeallsuchfurtheractionasmaybenecessaryinordertoconsummatethetransactionscontemplatedhereby.16.VALIDITY.,TheinvalidityorunenforceabilityofanyprovisionsofthisAgreementshallnotaffectthevalidityorenforceabilityoftheotherprovisionsofthisAgreement,whichshall,remaininfullforceandeffect.IntheeventanycourtorothercompetentauthorityholdsanyprovisionsofthisAgreementtobenull,voidorunenforceable,thepartiesheretoshallnegotiateingoodfaiththeexecutionanddeliveryofanamendmenttothisAgreementinorder,asnearlyaspossible,toeffectuate,totheextentpermittedbylaw,theintentofthepartiesheretowithrespecttosuchprovisionandtheeconomiceffectsthereof.Ifforany.reasonanysuchcourtorregulatoryagencydeterminesthatLILCOisnotpermittedto,acquire,orthe-'-Companyisnotpe'rmittedtorepurchasepursuanttoSection7,,thefullnu'mberofshaiesof.CompanyCom'inonStockprovidedinSection1hereof(asthe'samemaybeadjusted),itistheexpressintentionoftheCompanytoallowLILCOtoacquireortorequiretheCompany'o'repurchase'suchlesser",numberofsharesasmaybepermissible,withoutanyamendmentormodificationhereof.Eachpartyagreesthat,shouldanycourtorothercompetentauthorityholdanyprovisionofthisAgreementorparthereoftobenull,voidoruneriforceable,ororderanypartytotakeanyactioninconsistentherewith,ornottakeanyactionrequiredherein,theotherpartyshallnotbeentitledtospecificperformanceofsuchprovisionorparthereofortoanyotherremedy,includingbutnotlimitedtomoneydamage's,forbreachhereoforofanyotherprovisionofthisAgreementorparthereofa'stheresultofsuchholdingororder.tl'7.NOTICES.Allnoticesandothercommunicationhereundershallbeinwriting.andshallb,deemedgivenif(i)deliveredpersonally,or(ii)sentbyreputableovernightcourierservice,C-8
'~"'iii)telecopied(which'is'onfirmed),or.(iv)'ivelaysafter'beinginailed-byregisteredorcer'tifiedmail(returnreceiptrequested)to'.the'partiesatthefollowing'addresses'(or"atsuchotheraddressforapartyasshallbespecifiedby'likenotice):A.IftoLILCO',to!"'if.LongIsland,LightingCompany,,175East,OldCountyRoad,;,HicksvilleNewYork11801,-Attention:ChiefExecutiveOfficerwithacopyto:Kramer,Levin,Naftalis&Frankel919ThirdAvenueNewYork,NewYork10022Artention:ThomasE.ConstanceB.IftotheCompany,to:TheBrooklynUnionGasCompanyOneMetroTechCenterBrooklyn,NewYork11201-3850Attention:ChiefExecutiveOfficerwithacopyto:Wachtell,Lipton,Rosen&Katz51West52ndStreetNewYork,NewYork10019Attention:SethA.Kaplan18.GOVERNINGLAW;CHOICEOFFORUM.ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkapplicabletoagreementsmadeandtobeperformedentirelywithinsuchStateandwithoutregardtoitschoiceoflawprinciples.Eachofthepartieshereto(a)consentstosubmititselftothepersonaljurisdictionofanyfederalcourtlocatedintheStateofNewYorkoranyNewYorkstatecourtintheeventanydisputearisesoutofthisAgreementoranyofthetransactionscontemplatedbythisagreement,(b)agreesthatitwillnotattempttodenyordefeatsuchpersonaljurisdictionbymotionorotherrequestforleavefromanysuchcourtand(c)agreesthatitwillnotbringanyactionrelatingtothisAgreementoranyofthetransactionscontemplatedbythisAgreementinanycourtotherthanafederalcourtsittingintheStateofNewYorkoraNewYorkstatecourt.19.INTERPRETATION.WhenareferenceismadeinthisAgreementtoaSectionsuchreferenceshallbetoaSectionofthisAgreementunlessotherwiseindicated.Wheneverthewords"include","includes"or"including"areusedinthisAgreement,theyshallbedeemedtobefollowedbythewords"withoutlimitation".Thedescriptiveheadingshereinareinserted,forconvenienceofreferenceonlyandarenotintendedtobepartofortoaffectthemeaningorinterpretationofthisAgreement.20.COUNTERPARTS.ThisAgreementmaybeexecutedintwocounterparts,eachofwhichshallbedeemedtobeanoriginal,butbothofwhich,takentogether,shallconstituteoneandthesameinstrument.21.EXPENSES.ExceptasotherwiseexpresslyprovidedhereinorintheExchangeAgreement,allcostsandexpensesincurredinconnectionwiththetransactionscontemplatedbythisAgreementshallbepaidbythepartyincurringsuchexpenses.22.AMENDMENTS;WAIVER.ThisAgreementmaybeamendedbythepartiesheretoandthetermsandconditionshereofmaybewaivedonlybyaninstrumentinwritingsignedonbehalfofeachofthepartieshereto,or,inthecaseofawaiver,byaninstrumentsignedonbehalfofthepartywaivingcompliance.C-9' 23.EXTENSIONOFTIMEPERIODS.ThetimeperiodsforexerciseofcertainrightsunderSections2,6and7shallbeextended:(i),totheextentnecessarytoobtainallregulatoryapprovalsfortheexerciseofsuchrights,andfortheexpirationofallstatutorywaitingperiods;and(ii)totheextentnecessarytoavoidanyliabilityunderSection16(b)oftheExchangeActbyreasonofsuch.exercise.24.REPLACEMENTOFCOMPANYOPTION.UponreceiptbytheCompanyofevidencereasonablysatisfactorytoitoftheloss,theft,destructionormutilationofthisAgreemen't,and(inthecaseofloss,theftordestruction)ofreasonablysatisfactoryindemnification,anduponsurrenderandcancellationofthisAgreement,ifmutilated,theCompanywillexecuteanddeliveranewAgreementofliketenoranddate.C-10 eINWITNESSWHEREOF,thepartiesheretohavecausedthisAgreementtobeexecutedbytheirrespectivedulyauthorizedofficersas'ofthedatefirstabovewritten.LONGISLANDLIGHTINGCOMPANYB./S/WILLIAMJ.CATACOSINOSName:Dr.WilliamJ.CatacosinosTitle:ChiefExecutiveOfficerTHEBROOKLYNUNIONGASCOMPANYBy:/s/RQBERTB.CATELLName:RobertB.CatellTitle:ChiefExecutiveOfficer
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ANNEXD0AGREEMENTANDPLANOFMERGERbyandamongBLHOLDINGCORP.,LONGISLANDLIGHTINGCOMPANY,LONGISL'ANDPOWERAUTHORITYANDLIPAACQUISITIONCORP.DatedasofJune26,1997
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TABLEOFCONTENTSARTICLEITHEMERGER;RELATEDTRANSACTIONSSection1.1Section1.2Section1.3Section1.4Section1.5Section1.6Section1.7Section1.8Section1.9Section1.10Section1.11Section2.1Section2.2Section2.3Section3.1TheMerger.EffectoftheMerger.EffectiveTimeoftheMerger.RelatedTransactions......,.DescriptionofAssets.Liabilities.'ransitionWork,ResignationsFormationofLIPASub.CharterAmendment.CertainOtherPreferredStock...ARTICLEIITREATMENTOFSHARESEffectoftheMergeronCapitalStockDissentingSharesIssuanceofParentShares.ARTICLEIIICLOSING'losing.r~~a~~rSection4.1Section4,2Section4.3Section4.4Section4.5Section4.6Section4.7Section4.8Section4.9Section4.10Section4.11Section4.12Section4.13Section5.1Section5.2Section5.3Section5.4Section5.5Section6.1Section6.2ARTICLEIVREPRESENTATIONSANDWARRANTIESOFPARENTOrganizationandQualification.Subsidiaries.CapitalizationAuthority;Non-Contravention;StatutoryApprovals;Compliance........ReportsandFinancialStatementsAbsenceofCertainChangesorEvents.LitigationRegistrationStatementandProxyStatement.EnvironmentalProtection.RegulationasaUtilityVoteRequireInsurance................................................Disclosure.ARTICLE7,REPRESENTATIONSANDWARRANTIESOFAUTHORITYANDLIPASUBOrganizationAuthority;Non-Contravention;StatutoryApprovals;ComplianceDisclosureOwnershipofLIPASub;NoPriorActivitiesOwnershipofCompanyCommonStockARTICLEVICOVENANTSCovenantsofParentandCompany.CovenantsofAuthorityandLIPASub................i.'
Section7.1Section7.2Section7.3Section7.4Section7.5~Section7.6Section7.7Section7.8Section7.9Section7.10Section7.11Section7.12Section7.13Section7.14Section8.1Section8.2Section8.3"ARTICLEVII';,ADDITIONALAGREEMENTSAccesstolnformation."'"'''ProxyStatementandRegistrationStatementShareholderApproval~.DisclosureScheduleRegulatoryMattersPublicAnnouncements...........;.Confidentiality..'..;.';;.CertainLitigation.~'V~Expenses~FurtherAssurances.;PurchasePriceAllocation.ReceiptofConsentsandApprovals.CertainOtherMatters..........,..OpinionsofCounsel..........,...,...,,.ARTICLEVIIICONDITIONS,ConditionstoEachParty'sOblig'ations.'"ConditionstoObligationsofAuthor'ity'andLIPASub.ConditionstoObligationsofParentandCompany.SIVknhV~V~~~~~V'n>7~nVn<<S~.n,nVVnn7In.,',ARTICLEIXTERMINATIONANDAMENDMENTSection9.1Section9.2Section9.3Section9.4Section9.5Termination.EffectofTermination.Survival.;Amendment.Extension;WaiverV'~~V~~ARTICLEXSTANDSTILLSection10.1Standstill7SectionSectionSectionSectionSectionSectionSectionSectionSectionSectionARTICLEXIMISCELLANEOUS11.1CertainDefinitions11.2Notices.........,11.3DescriptiveHeadings.11.4Counterparts11.5EntireAgreement;Assignment11.6GoverningLaw11.7SpecificPerformance.........!."'.."."..~'<.'"."~11.8PartiesinInterest<<lyre11.9Severability.~<<~~r~<<~~~~1~~~~~~~~<<~~'11.10Alternative,DisputeResolution..........:..','.<~.<<(<<1~V-0 ScheduleAScheduleBScheduleCScheduleDScheduleEScheduleFScheduleGExhibitAExhibitBExhibitCExhibitDExhibitEExhibitFExhibitG.'xhibitHTransferredAssetsPrinciplesandProceduresforFinalizingtheTransferredAssetScheduleTransitionWorkTaxMattersEmploymentMattersFutureRightsRetainedAssetsFormofManagementServicesAgreementFormofPowerSupplyAgreementFormofEnergyManagementAgreementFormofGenerationPurchaseRightAgreementGuarantyAgreementFormofParentLiabilitiesUndertakingFormofAuthorityLiabilitiesUndertakingFormofCertificateofDesignation
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AGREEMENTANDPLANOFMERGER(the"Agreement"),datedasofJune26,1997,by,andamongBLHOLDINGCORP.,acorporationtobeformedasaNewYorkcorporation,as'contemplated:herein("Parent."),LONGISLANDLIGHTINGCOMPANY,aNewYorkcorporation("Company"),LONGISLANDPOWER'AUTHORITY,acorporatemunicipalinstrumentalityandpoliticalsubdivisionoftheStateofNewYork("Authority"),andLIPAACQUISITIONCORP.,aNewYorkcorporation("LIPASub").W,ITNESSETHWHEREAS,AuthorityisauthorizedundertheLongIsland'PowerAuthorityAct,PublicAuthoritiesLawSection1020etseq.(the"Act")toacquirealloranypartofCompany'ssecuritiesorassets;andWHEREAS,theActconfersuponAuthoritythepowertocondemnthesecuritiesand/orassetsofCompany,includingthecommonstock'ofCompanytobeacquiredintheproposedtransaction,andAuthorityhaspreviouslypubliclyannounceditsintentiontoconsiderexercisingitscondemnationpowertoacquirethecommonstockorassetsofCompanyifanegotiatedtransactioncannotbeachieved;and1WHEREAS,TheBrooklynUnionGasCompany,aNewYorkcorporation("BU"),CompanyandParenthaveenteredintoanAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofJune26,1997(the"ExchangeAgreement"),whichprovidesforthebusinesscombinationofBUandCompanyaspeerfirmsandtheformationofParentasaholdingcompanytomanagetheircombinedbusinesses;andWHEREAS,Authority,CompanyandBUhaveundertakennegotiationsastovariousmethodsofaccomplishingtheobjectivessetforthintheActandinconnectionwithsuchnegotiations,thepartieshavereacheddefinitiveagreement'astothetransactionsdescribedherein;andWHEREAS,theBoardsofDirectorsofCompanyandLIPASubandtheBoardofTrusteesofAuthorityhaveeachdeterminedthatitisadvisableforAuthoritytocauseLIPASubtomergewithandintoCompanyuponthetermsandsubjecttotheconditionssetforthherein;andWHEREAS,infurtheranceofsuchcombination,theBoardsofDirectorsofCompanyandLIPASubandtheBoardofTrusteesofAuthorityhaveeachapprovedthemerger(the"Merger")ofLIPASubwithandintoCompany,inaccordancewiththeapplicableprovisionsoftheNewYorkBusinessCorporationLaw(the"NYBCL"),anduponthetermsandsubjecttotheconditionssetforthherein;NOW,THEREFORE,inconsiderationoftheforegoingandtherespectiverepresentations,warranties,covenants,agreements,andconditionscontainedherein,andintendingtobelegallyboundhereby,thepartiesagreeasfollows:ARTICLEITHEMERGER;RELATEDTRANSACTIONSSection1.1TheMerger.UponthetermsandsubjecttotheconditionsofthisAgreement,attheEffectiveTime(asdefinedinSection1.3),LIPASubshallbemergedwithandintoCompany(the"Merger")inaccordancewiththelawsoftheStateofNewYork.CompanyshallbethesurvivingcorporationintheMergerandshallcontinueitscorporateexistenceunderthelawsoftheStateofNewYork.CompanyasthesurvivingcorporationaftertheMergerishereinaftersometimesreferredtoasthe"SurvivingCorporation."Section1.2EgectoftheMerger.AttheEffectiveTime,(i)thecertificateofincorporationoftheCompany,asineffectimmediatelypriortotheEffectiveTime,shallbethecertificateofincorporationoftheSurvivingCorporationuntilthereafteramendedasprovidedbylawandinsuchcertificateofincorporationand(ii)theby-lawsofCompany,asineffectimmediatelypriortotheEffectiveTime,shallbetheby-lawsoftheSurvivingCorporationuntilthereafteramendedasprovidedbylaw,inthecertificateofincorporationoftheSurvivingCorporationandinsuchby-laws.Subjecttotheforegoing,theadditionaleffectsoftheMergershalleasprovidedintheapplicableprovisionsoftheNYBCL.D-1 Section1.3EffectiveTimeoftheMerger.Aspromptly,aspr'acticableafterthesatisfactionorwaiveroftheconditionssetforthinArticleVHIandtheconsummationofthetransactionscontemplatedbySection1.'4(d),the'paitiesheretoshallcausetheMerger.tobeconsummatedbyfilingacertificateofmergerascontemplatedbytheNYBCL(the."CertificateofMerger"),togetherwithanyrequiredrelatedcertificates,withtheSecretaryofStateoftheStateof,NewYork,insuchformasrequired,by,andexecutedinaccordancewiththerelevantprovisionsof,theNYBCL(thetimeofsuchfilingbeingthe"EffectiveTime").,ISection1.4RelatedTransactions.InadditiontotheMerger,thefollowingtransactionswillbeconsummatedatorpriortotheClosing(asdefinedbelow):(a)FormationofSubsidiaries.ParentandCompanyshalltakeallnecessaryactiontoformpriortotheClosingsuchsubsidiaries(whichmaybelimitedliabilitycompanies)ofParent(the''TransfereeSubsidiaries")which,atthedirectionofParent,will,asapplicable,(i)enterintoattheClosingamanagementservicesagreementintheformofExhibitAattachedhereto(the"ManagementServicesAgreement"),apowersupplyagreementintheformofExhibitBattachedhereto(the"PowerSupplyAgreement",),anenergymanagementagreementintheformofExhibitCattachedhereto(the"EnergyManagementAgreement"),agenerationpurchaserightagreementintheformofExhibitDattachedhereto(the"GenerationPurchaseRightAgreement")andaguarantyagreementintheformofExhibitEattached'heieto(the"GuarantyAgreement")and/or(ii)receiveth'eassetsandpropertiesofCompanysetforthonScheduleAattachedhereto(the"Transfer'redAssets").Parent,uponwrittennoticetothepartieshereto,maydirectanyportionoftheTransferredAssetstobedistributedtoaparticularTransfereeSubsidiary;provided,however,thattheTransfereeSubsidiarywhichisdesignatedbyParenttoreceivetheassetscontemplatedbytheGenerationPurchaseRightAgreementtobesubjecttoCompany'srightsthereundershallbetheTransfereeSubsidiarythatentersintotheGenerationPurchaseRightAgreement.V(b)Companyshall,reasonablypriortotheanticipatedClosingDate,formanewNewYorkcorporationtoactasParenthereunderandtoown,directlyorindirectly,allofthestockorotherequityinterestsoftheTransfereeSubsidiaries,shallprovideAuthorityandLIPASubwithwrittennoticeofsuchformationandshallcausesuch"newcorporationtoexecuteanddeliveracounterparthereof,"whereuponsuchnewcorporationshalbecomeParentforallpurposeshereofandeachotherBasicAgreement(ashereinafterdefined).(c)Companywillusereasonableeffortstotransfertoawholly-ownedsubsidiaryofCompanyitsownershipinterestintheNineMilePointTwoNuclearPowerPlantanditsinterestinallrelatednuclearfuelandnucleardecommissioningtrustfunds("NineMile"),butCompany'sfailuretoobtainanyrequiredconsenttheretoofanygovernmentalagencyorotherownerofanyinterestthereinshallnotconstituteabreachofthisAgreement.(d)(i)ImmediatelypriortotheEffectiveTime,CompanyshalltransfertheTransferredAssetstotheTransfereeSubsidiariesinexchangefor,andParentshalldelivertoCompany,(i)theDesignatedNumber(ashereinafterdefined)ofsharesofthecommonstock,par'value$0.01pershare,ofParent("ParentCommonStock")and(ii)upto$75,000,000face,amountofParentpreferredstockinanaggregatefaceamountandhavingtherightsandtermstobespecifiedinanoticedeliveredbyParenttoeachpartyheretonotlaterthanthedateonwhichthenoticesofredemptionareissuedpursuanttoSection1.11(the."NewParentPreferred"Stock").The"DesignatedNumber"shallbethenumberofsharesofParentCommonStockspecifiedinanoticedeliveredbyParenttoeachpartyheretonotlaterthanthedateonwhichsuchnoticesofredemptionareissuedpursuanttoSection1.11andrepresentingParent'sgoodfaithestimateofthenetfairmarketvalueoftheTransferredAssetslessthefaceamountofNewParentPreferredStockdeliveredbyParentpursuanttothisSection1.4(d).ConcurrentlywithsuchdeliveryandimmediatelypriortotheEffectiveTime,CompanyshallsellforcashinaprivateplacementallsharesofNew'arentPreferredStocktooneormorepersonsorentitieswhicha'enototherwiseshareholdersofCompanyorBUattheEffectiveTime.('4(ii)Notwithstandingclause(i)ofthisSection1.4(d),iftheBUGLILCOTransactions(asdefinedinSection2.1(b))havebeenconsummatedpriortotheEffective,Time,thetransferoftheTransferredAssetsascontemplatedbysuchclause(i)shallbemadewithoutthedeliverybyParentofanyParentCommonStockorNewParentPreferredStock.D-2 eSection1.5DescriptionofAssets.To.theextentthatScheduleAhereto(the"TransferredAssetSchedule")doesnotprovideforafulllegaldescriptionoftheTransferredAssetsreferredtotherein,thepartiesheretoshallrevisetheTransferredAssetSchedulepriortotheClosinginaccordancewiththeprinciplesandproceduressetforthonScheduleBattachedhereto.Section1.6Liabilities.(a)AttheClosing,ParentandeachTransfereeSubsidiarywillexecuteanddelivertoAuthorityandSurvivingCorporationaliabilitiesundertakingandindemnificationagreementinsubstantiallytheform.ofExhibitFattachedhereto(the"ParentLiabilitiesUndertaking").(b)AttheClosing,theAuthorityandtheSurvivingCorporationwillexecuteanddelivertoParentandeachTransferee,Subsidiaryaliabilitiesundertakingandindemnificationagreementin,substantiallytheformofExhibitGattachedhereto,(the"AuthorityLiabilitiesUndertaking").SectionI:7TransitionWork.Theparties'agreetotaketherespectiveactionssetforthonScheduleCattachedheretotoprepareforanorderlytransitionundertheBasicAgreementsattheEffectiveTime.Section1.8Resignations.ParentshallcauseeachofficeranddirectorofCompanytoresignfromeachpositionanysuchpersonthenholdswithCompany,effectiveattheEffectiveTime.Section1.9FormationofLIPASub.ReasonablypriortotheanticipatedClosingDate,authorityshallcauseLIPASubtobedulyincorporatedasaNewYorkcorporationandshallcauseLIPASubtoexecuteacounterpartofthisAgreement.EachrepresentationandwarrantysetforthinArticleVwithrespecttoLIPASubshallbedeemedtohavebeenmadeonthedateofsuchexecution.JSection1.10'CharterAmendment.Authorityshall.,causetheAmendedandRestatedCertificateofIncorporationofCompanytobeamendedascontemplatedintherequestforarulingfrom,theInternalRevenueServicewithrespecttoSection115oftheInternalRevenueCodeof1986,asamended(the"Code"),notlaterhanthetenthbusinessdayafter'heEffectiveTime.AlSection'.11CertainOtherPreferredStock.PromptlyafterallconditionstotheClosingsetforth'inArticleVIIIhavebeensatisfiedorwaivedinaccordancetherewith(otherthanSection8.1(b),providedCompanyhasreceivedassurancessatisfactorytoCompanythatsuchconditioncanbesatisfied),CompanyshallissuenoticesofredemptionforalloutstandingsharesofCompanyPreferredStock(asdefinedinSection4.3)(otherthantheSeriesAAPreferredStockandtheotherseriesthereofspecificallyreferredtoinSection2.1(c)(iii))andshallpayallamountsdueinrespectofsuchredemptionaspromptlyaspracticableinaccordancewiththeapplicabletermsofCompany'sAmendedandRestatedCertificateofIncorporation.ARTICLEIITREATMENTOFSHARESSection2.1EgectoftheMergeronCapitalStock.AttheEffectiveTime,byvirtueoftheMergerandwithoutanyactiononthepartofanyholderofanycapitalstockofParent,CompanyorLIPASub:(a)CancellationofCertainStock,(i)EachshareofCompanyCommonStockandeachshareofCompanyPreferredStockthatisownedbyCompanyastreasurystock,andeachshareofCompanyPreferredStockownedbyanydirectorindirectwhollyownedSubsidiary(asdefinedinSection4.1)ofParentimmediatelypriortotheEffectiveTimeshall,byvirtueoftheMergerandwithoutanyactiononthepartoftheholderthereof,ceasetobeoutstanding,becancelleda'ndretiredwithoutpaymentofanyconsiderationthereforandceasetoexist.(ii)EachshareofthecommonstockofLIPASub,byvirtueoftheMergerandwithoutanyactiononethepartoftheholderthereof,shallbecancelledandconvertedintotherighttoreceiveonefullypaidand,subjecttoSection630oftheNYBCL,non-assessableshareofcommonstockoftheSurvivingCorporation.D-3 (b)TreatmentofCompanyCommonStock.(i)EachissuedandoutstandingshareofCompanyCommonStock,otherthansharescancelledpursuanttoSection2.1(a)andCompanyDissentingShares(asdefinedihSection2.2),shallbecancelledandconvertedintotherighttoreceive(x)anamountofcashequaltotheCashPurchasePrice(asdefinedinSection2.1(d)(i))dividedbythenumberofsharesofCompanyCommonStockoutstandingontheClosingDate(the"CommonStockConversionAmount")and(y)anumberofsharesofParentCommonStock(the"TransferredAssetsStockPortion")equaltothenumberofsharesofParentCommonStockreceivedbyCompanypursuanttoclause(i)ofSection1.4(d)dividedbythenumberofsharesofCompanyCommonStockoutstandingontheClosingDate.EachholderofanysuchshareofCompanyCommonStockshallbedeemedherebytohaveappointedtheExchangeAgent(asdefinedinSection2.3(a))asitsagenttosubscribeforsharesofParentCommonStockbyapplyingtheaggregateCommonStockConversionAmountforsuchpurchase.ThenumberofsharesofParentCommonStocktobepurchasedfortheCommonStockConversionAmountshallbe(x)0.880sharesofParentCommonStocklesstheTransferredAssetsStock'PortionifthetransactionscontemplatedbytheExchangeAgreement(the"BUGLILCOTransactions")willbeconsummatedcontemporaneouslywiththetransactionscontemplatedherebyor(y)oneshareofParentCommonStocklessthe,TransferredAssetsStockPortioniftheBUGLILCOTransactionswillnotbeconsummatedcontemporaneouslywiththetransactionscontemplatedhereby.Uponsuchcancellation,allsuchsharesofCompanyCommonStockshallceasetoexist,andeachholderofacertificateformerlyrepresentinganysuchsharesshallceasetohaveanyrightswithrespectthereto,excepttherighttoreceiveParent"CommonStockpurchasedpursuanttothesecondsentenceofthisSection2.1(b)anddistributedpursuanttoclause(y)ofthefirstsentenceofthisSection2.1(b).(ii)Notwithstandingclause(i)ofthisSection2.1(b),iftheBUGLILCOTransactionshavebeenconsummatedpriortotheEffectiveTime,eachissuedandoutstandingshareofCompanyCommonStock,shallbecancelledandconvertedintotherighttoreceiveonlyanamountofcashequaltotheCommonStockConversionAmountandthetransactionscontemplatedbythesecondandthirdsentencesofsuchclause(i)shallnotoccur.(c)TreatmentofCompanyPreferredStock.(i)EachissuedandoutstandingshareofSeriesAAPreferredStockotherthansharescancelledpursuanttoSection2.1(a)andCompan'yDissentingSharesshallbecancelleandconvertedintotherighttoreceiveonefullypaidand,subjecttoSection630oftheNYBCL,non-assessableshareofpreferredstock,parvalue$25pershare,ofParent("ParentPreferredStock")withidenticalrights(includingdividendrates)anddesignationstotheSeriesAAPreferredStockassetforthintheCertificateofDesignationattachedheretoasExhibitH.Uponsuchconversion,eachholderofacertificateformerlyrepresentinganysharesofSeriesAAPreferredStockshallceasetohaveanyrightswithrespectthereto,excepttherighttoreceivethesharesofParentPreferredStock,inconsiderationthereforuponthesurrenderofsuchcertificateinaccordancewithSection2.3.(ii)EachissuedandoutstandingshareofCompanyPreferredStockthatissubjecttooptionalredemptionbyCompanyatorbeforetheClosingDate(otherthansharescancelledpursuanttoSection2.1(a)(collectively,"RedeemablePreferredStock")shallbecalledforredemptionbyCompanyasprovidedinSection1.11andallsuchsharesshallberedeemedforcashbyCompanyinaccordancewiththetermsapplicabletosuchshares.Theaggregateamountofaccruedbutunpaiddividendsand,redemptionpremiumspayablebyCompanyinrespectofsuchredemptions(the"AggregateRedemptionPremium")shallbepaidbyParenttoCompanynotlaterthantwobusinessdayspriortothedatetheapplicableredemptionpriceispayable.(iii)HachissuedandoutstandingshareofCompanyPreferredStock(otherthansharescancelledpursuanttoSection2.1(a),Company,.DissentingShares,sharesofSeriesAAPreferredStockandRedeemablePreferredStock)(collectively,"NonredeemablePreferredStock")shallbecancelledandconvertedintotherighttoreceivecashintheamountofthesumof(x)theMake-WholeAmount(ashereinafterdefined)and(y)accruedbutunpaiddividendsinrespectofsuchsharethroughtheClosingDate.Asusedherein,"Make-WholeAmount"withrespecttoeachshareofNonredeemablePreferredStockmeansanamountequaltothepresentvalueof(A)thefaceorliquidationpreferenceamount,whicheveri.applicable,ofsuchshareand(B)theremainingdividendpaymentsdueonsuchsharebetweentheClosinD-4 DateandtheearliestdateonwhichCompanymayredeemsuchshare,computedusingadiscountrateequaltotheapplicableFairMarketRatedividedby0.95."FairMarketRate"isdefinedasthe-GenericGeneralObligationFairMarketYieldforBaaratedLow/MediumCouponGeneralMunicipalObligationsatthetimeofthecomputationasreportedonBloomberg,withamaturitymostnearlyequal.totheperiodbetweencancellationandfinalredemptionofsuchseriesofNon-redeemablePreferredStock.TheperiodbetweencancellationandredemptionreferstotheperiodbetweentheClosingDateand:(A)August1,2002,withrespecttotheSeriesCCPreferredStock,(B)March1,1999,withrespecttotheSeriesGGPreferredStock,(C)May1,2001,withrespecttotheSeriesQQPreferredStock,and(D)October16,2018,withrespecttotheSeriesUUPreferredStock.Theamountbywhich'heaggregateamountpayablepursuanttothisSection2.1(c)(iii)exceeds100%oftheaggregatefaceorliquidationpreference,amounts,whicheverisapplicable,forallsharesofNonredeemablePreferredStockshallbepaidbyParenttotheSurvivingCorporationattheEffectiveTime.(d)CashPurchase,.Price;Adjustqient.,(i)The"CashPurchasePrice"tobepaidbyAuthorityshallbe$2,497,500,000.(ii)TheCashPurchasePrice'hasbeendeterminedbaseduponthenetbookvalueoftheRetainedAssets(asdefinedinSection4.4(b))of$2,500,800,000asset'orthintheproformaconsolidatedbalancesheetofCompanyas'fDecember31,1997preparedbyCompany(the"Pro'FormaBalanceSheet").TheCashPurchasePriceisbasedupontheassumptionthatthetotallong-termindebtednessofCompanyontheClosingDateshallnotexceed$3,576,000,000(the"RetainedDebtAmount").TheRetainedDebtAmountshallbeadjustedinaccordancewiththeadjustmentreferredtoinSection2.1(d)(vi)(the"Adjustment").(iii)Nolaterthan60daysaftertheClosingDate,'ParentshallprepareanddelivertoAuthority,withacopytoAuthority'sindependentaccountants,PriceWaterhouseLLP("PriceWaterhouse"),theauditedconsolidatedbalancesheetofCompanyasoftheClosingDate(the"ClosingDateBalanceSheet")andastatement,asoftheClosingDate(the"Statement"),settingforth.theamountoftheAdjustmentandthecalculationsthereofinreasonabledetailandshowingthedifferencesbetweeneachaccountcontainedintheProForma.BalanceSheetandthecorrespondingaccoui)tintheClosingDateBalanceSheet.TheClosingDateBalance.SheetandtheStatement.shallbepreparedinaccordancewithgenerallyaccepted,accountingprinciplesusedbyCompanyinthepreparationofitsfinancialstatements,fortheyearendedDecember31,1996("GAAP"),usingallocationproceduresconsistentwiththeproceduresusedbyCompanytopreparetheProFormaBalanceSheetanditsauditedhistoricalfinancialstatements.DuringtheperiodrequiredtopreparetheClosingDateBalanceSheet,SurvivingCorporation,willmakeavailablethebooksandrecordsofSurvivingCorporation,toParent,itsauthorizedrepresentativesandParent'sindependentauditors,Ernst&Young("E&Y").(iv)Duringthe60-dayperiodfollowingreceiptbyAuthorityoftheClosingDateBalanceSheetandtheStatement,ParentshallmakeavailableandshalldirectE&YtomakeavaifabletoAuthorityandPriceWaterhousecopiesoftheworkingpapers,booksandrecordsusedinthepreparationoftheClosingDateBalanceSheetandtheStatement,asreasonablyrequestedbyAuthority.TheClosingDateBalanceSheetandtheStatementshallbecomefinalandbindinguponthepartiesatthecloseofbusinessonthesixtiethdayfollowingreceiptthereofbyAuthority,excepttotlieextentthatAuthoritygiveswrittennoticeofitsdisagreementwiththeClosingDateBalanceSheetortheStatement("NoticeofDis'agreement")toParentpriortosuchdate,orifsuchdayisnotabusinessday,thenextfollowingbusinessday.AnyNoticeofDisagreementshallspecifyinreasonablede'tailthenatureofanydisagreementsoasserted.(v)Duringthe30-dayperiodfollowingthedeliveryofaNoticeofDisagreement,ParentandAuthority~'shallseekingoodfaithtoresolveinwritinganydifferenceswhichtheymayhavewithrespecttothematters,specifiedintheNoticeofDisagreement.Duringsuch'eriod,ParentandE&YshallhaveaccesstotheworkingpapersofPriceWaterhousepreparedinconnectionwiththeiranalysisofanymatterspecifiedintheNoticeofDisagreement,asreasonablyrequestedbyParent,andAuthorityandPriceWaterhouseshallhaveaccesstotheworkingpapersofE&YpreparedinconnectionwiththeClosingDateBalanceSheetandtheStatement,asreasonablyrequestedbyAuthority.Attheendofsuch30-dayperiod,ParentandAuthorityD-5 shallsubmit'oanindependentaccountingfirm(the"AccountingFirm")forreviewandresolution'ofanyandallmatterswhichremainindisputeandwhichwereincludedintheNoticeofDisagreement.TheAccountingFirmshallbeKPMGPeatMarwickor,ifsuchfirmisunableorunwillingtoact,suchother~nationallyrecognizedindependentpublicaccountingfirmasshallbeagreeduponbyParentandAuthorityinwriting,IfParentandAuthoritydonotagreeontheselectionofanationallyrecognizedindependentaccountingfirm,Price.Waterhouse.andE&YshallselectathirdaccountingfirmtoactastheAccountingFirmhereunder.TheAdjustmentasdeterminedbyParent,asmodified(ifatall)byresolutionofParentandAuthorityorbytheAccounting'Firm,isreferredtohereinasthe"FinalAdjustment."ThedeterminationoftheAccountingFirmastosuchmattersshallbefinalandbindingonthepartieshereto,andParentandAuthorityagreethatjudgmentmaybeentereduponthedeterminationoftheAccountingFirminany'ourthavingjurisdictionoverthepartyagainstwhichsuchdeterminationistobeenforced.ThefeesandexpensesoftheAccountingFirmincurredpursuanttothisSection2.1(d)(v)shallbebornebyParentandAuthorityininverseproportionastheymayprevailonmattersresolvedbytheAccountingFirm,whichproportionateallocationsshallalsobedeterminedbytheAccountingFirmatthetimethedeterminationofthe'AccountingFirmisrenderedonthemeritsofthematterssubmitted.ThefeesanddisbursementsofE&YincurredinconnectionwiththeircertificationoftheClosingDateBalanceSheetandtheStatementandreviewofanynoticeofDisagreementshallbebornebyParentandthefeesanddisbursementsofPriceWaterhouseincurredinconnectionwiththeirreviewoftheClosingDateBalanceSheet,andtheStatementshallbebornebySurvivingCorporationorAuthority.'vi)TheRetainedDebtAmount'shallbe(A)increasedbytheamount,ifany,bywhichthenetbookvalueoftheRetainedAssetsex'ceeds$2,500,800,000or'B)decreasedbytheamottnt,if.any,by'hichthenetbookvalueoftheRetainedAssetsislessthan$2,500,800,000.(vii)TheTransferredAssets.shallincludeallcashheldbyCompanyattheClosingexceptforthenet'proceedsof'thesale'of.NewParentPreferredStock.TheaccountspayableretainedbyCompanyimmediatelyfollowingtheClosing'hallbe$101.7millionplusormiriustheNewParentPreferred'StockAdjtistmentashereinafterdefine'd."Totheextentthat,thea'mountofsuchnetproceedsfromthesaleoftheNewParentPreferredStockismore(the"Excess")orlessthan$75million(the"Shortfall")theaccountspayableretainedbytheCompanyimmediatelyfollowingtheClosingshallbeincreasedordecreased'bytheamountoftheExcessorShortfall,'espectively,(the"NewParent'referredStockAgreement'-').(e)RetainedDe'bt.'ttheClosing,ParentshallexecuteanddeliverandshallcauseeachTransfereeSubsidiarytoexecuteanddeliver,toCompanysuchpromissorynotesasshallhaveanaggregateprincipalamountequaltotheexcess;ifany,of(i)theindebtednessofCompanyoutstandingonthe'ClosingDate(the"ClosingDateDebtAmount")over(ii)theRetainedDebtAmountandasshallhavesuchratesandmaturities(including,withoutlimitation,,acceleratedmaturitiesresultingfromdefaultandvoluntaryandmandatoryprepayments)asshallcorrespond,toeachportionofdebtunderlyingtheindebtednessof.CompanyontheClosingDate(the"PromissoryNotes");provided,however,thatsuchinterestandprincipalpaymentdatesshallbeadjustedtorequirepaymentbyParent,30dayspriortothecorrespondingpaymentdatesontheunderlyingdebt,ofanamountwhich,includingamountsassuredtobeearnedbyAuthoritywhilesuchfundsareheldbyit,w'illbesufficienttomakethecorrespondingpayments,TheaggregateexcessprincipalamountshallbeallocatedtoeachPromissoryNoteonaproratabasissuchthattheratioof(x)theprincipalamountofeachPromissoryNoteto(y)theaggregateexcessprincipalamountshallcoriespondtotheratioof(A)theprincipalamountofthecorrespondingunderlyingportionofdebtto(B)theClosingDateDebtAmount.TheClosingDateDebtAmountshall,fortliepurposeofcalculatingtheaggregateprincipalamountofsuchPromissoryNotes,betheainountsetforthinacertificatesignedbytheChiefFinancialOfficerofCompanyanddeliveredtoParentandAuthorityontheClosingDate.Such'amountshallbereviewedbyE&YinaccordancewithSection2.1(d)(iii)andtheactualamount,thereofshallbesetforthinthe,Statement.TheactualamountshallbesubjecttoreviewbyPriceWaterhouse,inaccordancewiththeproceduressetforthinSection2.1(d)(iv),withanydisagreementsbeingresolvedinaccordancewiththeproceduressetforthinSection2.1(d)(v).Uponthefinaldeterminationofsuchamount,thePromissoryNotes'shallbeadjustedonaproratabasistoreflecttheprincipalamountsodetermined.~l'~'-6 (f)CreditRating.(i)If,atanytimewhenanyPromissoryNotesareoutstanding,aMaterialDeclinein,arent's,CieditStanding(as,-definedbelow)occurs,thenwithin10daysaftersuchoccurrence,,ParentshallprovidecreditenhancementofthePromissoryNot~,hereunderatitssolecostandexpenseintheformofaletterof,credi<securingthePromissoryNoteshereunder,inafaceamountequaltotheaggregateoutstandingbalanceso(thePromissoryNotes,issued,byafinancialinstitutionwhoselong-termseniordebt,isorwouldberated"A",or,betterbyqtleasttwonationallyrecognized,ratingservices.I(ii)Forpurposesof:thisSection,a"MaterialDeclineinParent'sCreditStanding"shall,be'deemedto'ha've'occurredif:(1)Parenthaslong-termseniordebtoutstandingwhichis,ratedbyariationallyrecognized'~'atingserviceandParent'slong-termseniordebtoutstandingisnotratedatleast"A",-bytwoormoresucliratingservices',or(2)inthesolereasonableopinionoftheAuthority,inthe'eventthat'Parentdoesnothav'e'."Iong-term~seniordebt'outstandingorsuchdebtisnotratedbyatleasttwo'nationallyrecoghizedratingservices,orthecreditstandingofParentdeclinestoalevelwhichisinsufficienttosupportatleast.an."A"creditratingbytwoormorenationallyrecognizedratingservices,whetherornotanysuchdebtis,outstanding.ParentshallimmediatelynotifytheAuthorityofany,MaterialDeclineinParent'p,CreditStanding.(iii)UpontheoccurrenceofaMaterialDeclineinParent'sCreditStanding,,Parentshallhave,theright.,to=economicallydefeasethePromissoryNotesby,deliveringtoAuthorityU.S.treasurysecuritiesofsuch.maturitiesandinsuchprincipalamountsasshallbesufficient,asreasonablydeterminedbyAuthority,toproducecashatthetimesandinthe.amountsrequiredtopayallamountsdueinrespectoftheindebtedness,;tunderlyingthePromissoryNotes.Nl(t'g)TreatlnentofDebtatClosing.(i)Thepartiesshallcooperatewithehch'othertoeffectrefinancings;repayments,'mendmentsof'Company'soutstandingindebt'ednessandotherrelatedtransactionswiththe,iritentionofminimizingtheaggregateprincip'al"amountofthePromissory'NotesandmaximizingtheamountofCompany'stax-exemptindebtednessottheEffectiveTime.'ii)No'artyshall'be'equiredbythis"Section2.1(g)toeffectanytran'sactionthatitreasonablydeterminestobefinanciallyadversetoitbycomparisontothe'transactionscontemplatedbySection2.1'(e).p,(h)AssianptionofCertainDebt.Subjecttoobtainingallrequiredconsents,ParentwillassumeatClosing(i).,the7.3%DebenturesdueJuly151999withanapproximateaggregateprincipalamount.currentlyoutstandingof$397millionand(ii)the8.20%DebenturesdueMarch15,2023,withanapproximateaggregateprincipalamountcurrentlyoutstandingqf$270million,CertainothertaxexemptauthorityfinancingnoteswillbeidentifiedbythepartiesandassumedbyParent(subjecttoobtainingallrequiredconsentsandtotheparties'ax'coun'sel's'concurrence).IIp,(i)AccounisReceivableandAccruedUnbilledRevenues.Parentwillbeentitledto/responsible,foranyover/undercollectioninexcessof,$500,000oftheretainedcustomeraccountsreceivableandaccruedunbilledrevenues'ontheClosingDateBalanceSheet.PriortotheClosingDate,thepartieswilldevelopamutuallyagreeduponmethodologythatwillmeasuresuchcollections.J6f.Section2.2,Dissenting/bares.SharesofCommonStockSeriesAAPreferredStockorNonredeemablePreferredStockheldbyanyholderentitledto,reliefasadissentingshareholderunderSection910oftheNYBCL(the,"CompanyDissentingshares"),shallnotbecomethe,rightto,receive~theCommon,StockConversionAmountincash(inthecaseof.any:suchshareofCompanyCommonStock),ParentPreferredStock(inthecaseofanysuchshareofSeriesAAPreferredStock)oranycashamountpayablepursuanttoSection2.1(c)(iii)(inthecaseofan'ys'uchsh~ofNonredeemablePieferredStock),butshallbecancelledan'dconvertedintosuchconsiderationasmaybe'duewithres'pecttosuchsharespursuanttotheapplicable'provisionsoftheNYBCL,unlessanduntilthe'rightof'suchholdertoreceivefair'cashvalueforsuchCompanyDissentingShaiesterminatesinaccordancewithSection623ofthe"NYBCL.Ifsuchriglitisterminated"otherwisethanbythepilrchaseof.'suchsharesbyCompanyorLIPASub,thensuchsharesshallceasetobeCompanyDissentingSharesandshallrepresent>therighttoreceivethe,CommonStockConversionAmountincash,(inthecase.ofanysuchshareofCompanyCommonStock),ParentPreferredStock(inthecaseofanysuchshareofSeriesAAreferredStock)oranycashamount;payablepursuanttoSection2.1(c)(iii)(inthecaseofanysuchshareofonredeemablePreferredStock).D-"7 Section2.3IssuanceofParentShares.,(a)DepositwithExchangeAgent.Assoon'aspracticableaftertheEffectiveTime,ParentshalldepositwithsuchbankortrustcompanyasshallhavebeenmutuallyagreeabletoCompanyand'AuthoritypriortotheEffectiveTime(the"ExchangeAgent"),certificatesrepresentingParentSharesrequiredtoeffecttheissuancesreferre'dtoinSection2.1(b)'andSection2.1(c)(i).IfCompanyandAuthorityshallnothaveagreedontheExchangeAgentpriortotheEffectiveTime,thebank'ortrustcompanythenservingasregistrara'ndtransferagentfortheSeriesAAPreferredStockshallbeselectedtoactasExchangeAgentforthe.SeriesAAPreferredStock.ThesharesofParentCommonStocksubscribedforbytheExchangeAgentasagentfortheholdersofCompanyCommon'StockpursuanttoSection2.1(b)andthe,sharesofParentCommonStockconstitutingtheTransferred.AssetsStockPortion,togetherwiththesharesofParent.PreferredStockforwhichthesharesofSeriesAAPreferredStockaretobeexchangedpursuanttoSection2.1(c)(i),arereferredtohereincollectivelyasthe"ParentShares."(b)ProceduresforIssuanceofParentShares.AssoonaspracticableaftertheEffectiveTime,theExchangeAgentshallmailtoeachholderofrecordofa'certificateorcertificates(the"Certificat")'whichimmediatelypriortotheEffectiveTimerepresentedoutstandingsharesofSeriesAAPreferredStockorCompanyCommonStock,asapplicable(the"CancelledShares")thatwerecancelledandbecameinstead,directlyorindirectly,therighttoreceivetheapplicableParentShares,(i)aletteroftransmittal(whichshall.specifythatdeliveryshallbeeffected,andriskoflossandtitletotheCertificatesshallpass,onlyuponactualdeliveryof-theCertificatestotheExchangeAgent)and(ii)instructionsforuseineffectingthesurrenderoftheCertificatesinexchangeforcertificatesrepresentingParentShares.UponsurrenderofaCertificatetotheExchangeAgentforcancellation(ortosuchotheragentoragentsasmaybeappointedbyagreementofCompanyandAuthority),togetherwithadulyexecutedletteroftransmittalandsuchotherdocumentsastheExchangeAgentshallrequire,theholderofsuchCertificateshallbeentitledtoreceive,acertificaterepresentingthatnumberofParentShareswhichsuchholderhastherighttoreceivepursuanttotheprovisionsofthisArticleII.IntheeventofatransferofownershipofCancelledShareswhichisnotregisteredinthetransferrecordsofCompanyacertificaterepresentingthepropertiumberofParentSharesmaybeissuedtoatransfereeiftheCertificaterepresentingsuchCancelledSharesispresentedtotheExchangeAgent,accompaniedbyadocumentsrequiredtoevi'dericeandeffectsuchtransferandbyevidencesatisfactorytotheExchangeAgentthaanyapplicablestocktransfertaxeshavebeenpaid.UntilsurrenderedascontemplatedbythisSection2.3,eachCertificateshallbedeemedatanytimeaftertheEffectiveTimetorepresentonlytherighttoreceiveuporisuchsurrenderthecertificaterepresentingParentSharesascontemplatedbythisSection2.3.(c)DistributionswithrespecttoUnsurrenderedShares.NodividendsorotherdistributionsdeclaredormadeaftertheEffectiveTimewithrespecttotheParentShareswitharecorddateaftertheEffectiveTimeshallbepaidtotheholderofanyunsurrenderedCertificatewithrespecttotheParentSharesrepresentedtherebyuntiltheholderofrecordofsuchCertificateshallsurrendersuchCertificate.Subjecttotheeffectofunclaimedproperty,escheatandotherapplicablelaws,followingsurrenderofanysuchCertificate,thereshallbepaidtotherecordholderofthecertificatesrepresentingParentSharesissuedinconsiderationtherefor,withoutinterest,(i)atthetimeofsuchsurrender,theamountofdividendsorotherdistributionswitharecorddateaftertheEffectiveTimetheretoforepaidwithre'specttosuchParentSharesand(ii)attheappropriatepaymentdate,theamountofdividendsorotherdistributionswitharecorddateaftertheEffectiveTimebutpriortosurrenderandapaymentdatesubsequenttosurrenderpayablewithrespecttosuchParentShares.(d)ClosingofTransferBooks.FromandaftertheEffectiyeTime,thestocktransferbookoftheCompanyshallbeclosedandnotransfer,ofanycapitalstockoftheCompanyshallthereafterbemade.If>aftertheEffectiveTime,CertificatesarepresentedtotheCompany,theyshallbecancelledandexchangedforcertificatesrepresentingtheappropriatenumberofParentShares,asprovidedinthisSection2.3.'e)TerminationofZrchangeAgent.AnycertificatesrepresentingParentSharesdepositedwiththeExchangeAgentpursuanttoSection2.3(a)andnotexchangedwithinoneyearaftertheEffectiveTimepursuanttothisSection.2.3shallbereturnedbytheExchangeAgenttoParent,whichshallthereafteractasExchangeAgent.Parentshallnotbeliabletoanypersonforsuchsharesdeliveredtoapublicofficialpursuanttoanapplicableabandonedproperty,escheatorsimilarlaw.D-8 ARTICLEIIItCLOSINGSection3.1Closing.UponthetermsandsubjecttotheconditionsofthisAgreement,theconsummationofthetransactions'contemplatedbythisAgreement(the"Closing")willtakeplaceonthesecondbusinessdayfollowingtheredemptionofallseriesofCompanyPreferredStockcontemplatedtoberedeemed'pursuanttoSection1.11at10:00a.m.,atsuchplaceonLongIslandorothertimeasshallbeagreeduponbytheparties.ThedateonwhichtheClosingoccursisreferredtohereinasthe"ClosingDate."ARTICLEIVREPRESENTATIONSANDWARRANTIESOFPARENTANDCOMPANYEachofParentandCompanyherebyrepresentsandwarrantstoAuthorityandLIPASubasfollows:Section4.1OrganizationandQualtjication.ExceptascontemplatedbySection1.4,assetforthinSection4.1oftheParentDisclosureSchedule(asdefinedinSection7.4),eachofParent,CompanyandeachoftheCompanySubsidiaries(asdefinedbelow)isacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionofincorporationororganization,hasallrequisitecorporatepowerandauthority,andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetsandpropertiestotheextentowned,leasedandoperatedandtocarryonitsbusinessasitisnowbeingconductedandisdulyqualifiedandingoodstandingtodobusinessineachjurisdictioninwhichthenatureofitsbusinessortheownershiporleasingofitsassetsandpropertiesmakessuchqualificationnecessary.AsusedinthisAgreement,(a)theterm"Subsidiary"ofapersonshallmeananycorporationorotherentity(includingpartnerships,limitedliabilitycompaniesandotherbusinessassociations)ofwhichat,leastamajorityoftheoutstandingcapitalstockorothervotingsecuritieshavingvotingpowerunderordinarycircumstancestoelectdirectorsorsimilarmembersofthegoverningbodyofsuchcorporationorentityshallatthetimebeJield,directlyorindirectly,bysuchpersonand(b)theterm"CompanySubsidiary"shallmeanaSubsidiaryofompany.Section4.2Subsidiaries.Section4.2oftheParentDisclosureSchedulesetsforthadescriptionasofthedatehereofofallCompanySubsidiariesandJointVenturesofCompany("CompanyJointVentures"),including(a)thenameofeachsuchentityandCompany'sinteresttherein,and(b)abriefdescriptionoftheprincipallineorlinesofbusinessconductedbyeachsuchentity.ExceptassetforthinSection4.2oftheParentDisclosureSchedule,noneofCompanySubsidiariesisa"publicutilitycompany",a"holdingcompany",a"subsidiarycompany"oran"affiliate"ofanypublicutilitycompanywithinthemeaningofSection2(a)(5),2(a)(7),2(a)(8)or2(a)(11)ofthePublicUtilityHoldingCompanyActof1935(the"1935Act"),respectively.ExceptassetforthinSection4.2oftheParentDisclosureSchedule,alloftheissuedandoutstandingsharesofcapitalstockofCompanyandofeachCompanySubsidiaryarevalidlyissued,fullypaid,nonassessableandfreeofpreemptiverights,and,asoftheClosingDate,willbeowneddirectlyorindirectlybyParentfreeandclearofanyliens,claims,encumbrances,securityinterests,equities,chargesandoptionsofanynaturewhatsoeveran'dtherearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightof,conversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatinganysuchCompanySubsidiarytoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofitscapitalstockorobligatingittogrant,extendorenterintoanysuchagreementorcommitment.AsusedinthisAgreement,(a)theterm"JointVenture"ofapersonshallmeananycorporationorotherentity(includingpartnershipsandotherbusinessassociations)thatisnotaSubsidiaryofsuchperson,inwhichsuchpersonoroneormoreofitsSubsidiariesownsanequityinterestand(b)theterm"CompanyJointVenture"shallmeanthoseofthejointventuresofCompanyoranyCompanySubsidiaryidentifiedasaCompanyJointVentureinSection4.2oftheParentDisclosureSchedule.Section4.3Capitalization.TheauthorizedcapitalstockofCompanyisassetforthintheTransitioneportonForm10-QforthetransitionperiodfromJanuary1,1997toMarch31,1997.The.numberof~issuedndoutstandingsharesofcommonstock,parvalue$5pershare,ofCompany("CompanyCommonStock")D-9 andpreferredstockofCompany(the"CompanyPreferredStock"),andeachseriesthereof,asofDecember31,1996,areassetforthinCompany'sAnnualReportonForm10kfortheyearendedDecember31,1996,andCompanyhasneither,issued,sold,redeemedorrepurchasedanysharesofCompanyPreferredStocksinceDecember31,1996.All.oftheissuedandoutstandingsharesofthecapitalstockofCompanyarevalidlyissued,fullypaid,nonassessable(subjecttoSection630oftheNYBCL)andfreeofpreemptiverights.ExceptassetforthinSection4.3oftheParentDisclosureSchedule,asofthe'atehereof,therearenooutstandingsubscriptions,options,calls,contracts,votingtrusts,proxiesorothercommitments,understandings,restrictions,arrangements,rightsorwarrants,includinganyrightofconversionorexchangeunderanyoutstandingsecurity,instrumentorotheragreement,obligatingParent,CompanyoranyoftheCompanySubsidiariestoissue,deliverorsell,orcausetobeissued,deliveredorsold,additionalsharesofthecapitalstockofCompany,orobligatingParenttogrant;extendorenterinto,anysuchagreementorcommitment.TherearenooutstandingstockappreciationrightsofCompanywhichwerenotgrantedintandemwitharelatedstockoptionandnooutstandinglimitedstock'appreciation'rightsorotherrightstoredeemforcashoptionsorwarrantsofCompany..Section4.4Authority;Non-ContraventiontStatutoryApprovals;Compliance.(a)Authority.Each'ofParentandCompanyhasallrequisitepowerandauthoritytoenterintoeachofthisAgreement,theManagementServicesAgreement,thePowerSupplyAgreement,theEnergyManagementAgreement,theGenerationPurchaseRightAgreement,theGuarantyAgreement,the'ParentLiabilitiesUndertaking,theAuthorityLiabilitiesUndertakingandthePromissoryNotes(collectively,the"BasicAgreements")towhichitis'aparty,and,subjecttotheParentRequiredStatutoryApprovals(asdefinedinSection4.4(c)),toconsummatethetransa'ctionscontemplatedherebyandthereby.EachoftheapplicableTransfereeSubsidiarieswill,'at'theEffectiveTime,haveallrequisitepowerandauthoritytoenterintoeachoftheBasicAgreementst'owhichitisaparty,and,subjecttotheParentRequiredStatutory'pprovals,toconsummate"thetransactions'contemplatedthereby.Theexecution'anddeliveryofeachoftheBasicAgreementstowhichParent'orCo'mpanyisapartyandtheconsummationbyParentandCompanyofthetransactionscontemplatedherebyandtherebyhavebeendulyauthorizedbyallnecessarycorporateactiononthepartofParentandCompany,otherthantheCompanyShareholderApproval(asdefinedinSection4.11).TheexecutioanddeliveryofeachoftheBasicAgreementstowhichtheapplicableTransfereeSubsidiariesareapartyandthconsummationofthetransactions.contemplatedtherebywill,attheEffectiveTime,bedulyauthorizedbyallnecessarycorporateactiononthepartofsuchTransfereeSubsidiaries.ThisAgreementhas.beendulyandvalidlyexecuted-anddeliveredby.ParentandCompanyand,assumingthedueauthorization,executionanddeliveryhereofbytheothersignatorieshereto(otherthanLIPASub),constitutesthevalidandbindingobligationofParentandCompany,enforceableagainsteachoftheminaccordancewithitsterms.I(b)Non-Contravention.ExceptassetforthinSection4.4(b)oftheParentDisclosureSchedule,theexecutionanddeliveryof.thisAgreementbyParentandCompanyandeachoftheotherBasicAgreementstowhichParentorCompanyisapartydoesnot,andtheconsummationofthetransactionscontemplatedherebyandtherebywillnot,inanymaterialrespect,violate,confiictwith,orresultinamaterialbreachofanyprovisionof,orconstituteamaterialdefault(withorwithoutnoticeorlapseoftimeorboth)under,'orresultintheterminationormodificationof,oracceleratetheperformancerequiredby,or'esultinarightoftermination,cancellation,oracceleration'ofanyobligationorthelossofamaterialbenefitunder,orresultinthecreationofanymaterial'lien,security'nterest,chargeorencumbranceuponanyofthepropertiesorassetscontemplatedherebytobeownedattheEffectiveTime(x)byCompanyor(y)byanyCompanySubsidiaryorCompanyJointVentures'notconstitutingaportionoftheTransferredAssets(collectively,andasdescribedinScheduleG,the"RetainedAssets")(anysuchviolation,confiict,breach,default,rightoftermination,modification,cancellationoracceleration,lossorcreation,a"Violation"withrespecttoParent,CompanyoranyCompanySubsidiaries,suchtermwhenusedinArticleVhavingacorrelativemeaningwithrespecttoAuthorityandLIPASub)pursuanttoanyprovisionsof(i)thecertificateofincorporation,by-lawsorsimilargoverningdocumentsofParent,CompanyoranyoftheCompanySubsidiariesortheCompanyJointVentures,(ii)subjecttoobtainingtheParen'tRequiredStatutoryApprovalsandthereceiptoftheCompanyShareholderApproval,anystatute,law,ordinance,rule,regulation,judgmentdecree,order,injunction,writ,permitorlicenseofanyGovernmentaAuthority:(asdefinedinSection4.4(c))applicabletoParentorCompanyoranyoftheCompanySubsidiaries heCompanyJointVenturesoranyRetainedAssetor(iii)subjecttoobtainingthethird-partyconsentssetforthinSection4.4(b)oftheParentDisclosureSchedule(the"ParentRequiredConsents"),anymaterialnote,bond,mortgage,indenture,deed,oftrust,license,franchise,permit,concession,contract,leaseorotherinstrument,obligationoragreementofanykindtowhichParentorCompanyoranyoftheCompanySubsidiariesortheCompanyJointVenturesisapartyorbywhichanyRetainedAssetmaybeboundoraffected.(c)StatutoryApprovals.Nodeclaration,filingorregistrationwith,ornoticetoorauthorization,consentorapprovalof,anycourt,federal,state,localorforeigngovernmentalorregulatorybody(includingastockexchangeorotherself-regulatorybody)orauthority(eacha"GovernmentalAuthority")isnecessaryfortheexecutionanddeliveryofthisAgreementbyParentandCompanyandeachoftheotherBasicAgreementstowhichParent,CompanyoraTransfereeSubsidiaryisapartyortheconsummationbyParent,CompanyandtheTransfereeSubsidiariesofthetransactionscontemplatedherebyandthereby,.exceptasdescribedinSection4.'4(c)oftheParentDisclosureSchedule(the"ParentRequiredStatutoryApprovals,",itbeingunderstoodthatreferencesinthisAgreementto,"obtaining"suchParentRequiredStatutoryApprovalsshallmeanmakingsuchdeclarations,filings,orregistrations;givingsuchnotices;obtaining,suchauthorizations,consentsorapprovals;andhaving;Suchwaitingperiodsexpireasarenecessarytoavoidaviolationoflaw).,(d}Compliaiice.ExceptassetforthinSection4.4(d)orSection4.9oftheParentDisclosureSchedule,ScheduleD(TaxMatters)orScheduleE(EmploymentMatters)hereto,orasdisclosedintheParentSECReports(asdefinedinSection4.5)filedpriortothedatehereof(i)neitherParent,CompanynoranyoftheCompanySubsidiariesnor,totheknowledgeofParentor.Company,anyCompanyJointVentureis,withrespecttoanyRetainedAsset,inmaterialviolationof,is,withrespecttoanyRetainedAsset,underinvestigationwithrespecttoanymaterialviolationof,or,withrespecttpanyRetainedAsset,hasbeengivennoticeorbeenchargedvtithanymaterialviolationof>>anylaw,statute,order,ruleregulation,ordinanceorjudgment(including,withoutlimitation,anyapplicableEnvironmentalLaw,ordinanceorregulation)ofanyGovernmentalAuthority,and(ii)(otherthanas,,coveredtipderclause(i)ofthisSection4.4(d))neitherCompanynoranyoftheCompanySubsidiariesnor,totheknowledgeofParentorCompany,anyCompanyJointVenture,isinmaterialviolationf,isunderinvestigationwithrespecttoanymaterialviolationof,oi;hasbeengivennoticeorbeenchargedwithnymaterialviolationof,anylaw,statute,order,rule,regulation,ordinanceorjudgment(including,withoutlimitation,anyapplicableEnvironmentalLaw,ordinanceorregulation)ofanyGovernmentalAuthority.Exceptassetforthin.,Section4.4(d)oftheParentDisclosureScheduleorinSection4.9oftheParentDisclosureSchedule,CompanyandtheCompanySubsidiariesandCompanyJointVentureshaveallpermits,"licenses,franchises'andothergovernmental=authorizations,consentsandapprovalsnecessarytoconducttheirbusinessesaspresentlyconductedinallmaterialrespects.ExceptassetforthinSection4.4(d)oftheParentDisclosureSchedule,CompanyandeachoftheCompanySubsidiariesisnotinmaterialbreachorviolationoforinmaterialdefaultintheperformanceorobservanceofanytermorprovisionof,andnoeventhasoccurredwhich,withlapseoftimeoractionbyathirdparty,couldresu'ltinamaterialdefaultunder',(i)itscertificateofincorporationor'by-lawsor(ii)anymaterialcontract,commitment,agreement,indenture,mortgage,loanagreement,note,lease,bond,license,approvalorotherinstrumenttowhichitisapartyorbywhichitisboundortowhichanyRetainedAssetissubject.Section4.5ReportsandFinancialStatements.ThefilingsrequiredtobeinadebyParent,CompanyandtheCompanySubsidiariessinceJanuaryI,1994undertheSecuritiesActof1933(the"SecuritiesAct"),theSecuritiesExchangeActof1934,(the"ExchangeAct"),the1935Act,theFederalPowerAct,theAtomicEnergyActandapplicablestatelawsandregulationshavebeenfiledwiththeSecuritiesandExchangeCommission(the"SEC"),theFederalEnergyRegulatoryCommission("FERC"),theNuclearRegulatoryCommissionortheappropriate.statepublicutilitiescommission,asthecasemaybe,includingallforms,statements,reports,agreements(oralorwritten)andalldocuments,exhibits,amendmentsandsupplementsappertaining.thereto,andcomplied,asoftheirrespectivedates,inallmaterialrespectswithallapplicablerequirementsoftheappropriatestatuteandtherulesandregulationsthereunder.ParentorCompanyhasmadeavailabletoAuthorityorLIPASubatrueandcompletecopyofeachreport,schedule,registrationstatementandefinitiveproxystatementfiledbyParentorCompanywiththeSECsinceJanuary1,1994(assuchdocumentsvesince-thetimeoftheirfilingbeenamended,the"ParentSECReports").Asoftheirrespectivedates,the ParentSECReportsdidnotcontainanyuntruestatementofamaterialfactoromittostateamaterialfacrequiredtobestatedthereinornecessarytomakethestatementstherein,inlightofthecircumstancesunderwhichtheyweremade,notmisleading.TheauditedconsolidatedfinancialstatementsandunauditedinterimfinancialstatementsofCompanyincludedintheParentSECReportshavebeenpreparedinaccordancewithGAAP(exceptasmaybeindicatedthereinorinthenotestheretoandexceptwithrespecttounauditedstatementsaspermittedbyForm10-QoftheSEC)andfairlypresentthefinancialpositionofCompanyasofthedatesthereofandtheresultsofitsoperationsandcashflowsfortheperiodsthenended,subject,inthecaseoftheunauditedinterimfinancialstatements,tonormal,recurringauditadjustments.True,accurateandcompletecopiesoftherespectivecertificatesofincorporationandby-lawsofParentandCompany,asineffectonthedatehereof,areincluded(orincorporatedbyreference)intheParentSECReports.Section4.6AbsenceofCertainChangesorEvents.ExceptasdisclosedintheParentSECReportsfiledpri'ortothedatehereoforassetforthinSection4.6oftheParentDisclosureSchedule,since'December31,1995,Parent,CompanyandeachoftheCompanySubsidiarieshaveconductedtheirbusinessonlyintheordinarycourseofbusinessconsistentwithpastpracticeandtherehasnotbeen,andnofactorconditionexistswhichwouldhaveor,insofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectontheRetainedAssetsortheproperties,business,operations,financialconditionorprospectsofthebusinessrelatingtotheRetainedAssetstakenasawholeoramaterialadversedeclineintheelectricratesavingsprojectionspresentedtotheAuthorityatitsJune16,1997meetingtoberealizedaftertheClosing(a"MaterialAdverseEffect").Section4.7Litigation.ExceptasdisclosedintheParentSECReportsfiledpriortothedatehereoforassetforthinSection4.7orSection4.9oftheParentDisclosureSchedule,(i)therearenomaterialclaims,suits,actionsorproceedings,pendingor,totheknowledgeofParentandCompany,threatened,norarethere,totheknowledgeofParentandCompany,anymaterialinvestigationsorreviewspendingorthreatenedagainst,relatingtooraffectingCompanyoranyoftheCompanySubsidiaries,(ii)therehavenotbeenanysignificantdevelopmentssinceDecember31,1996withrespecttosuchdisclosedclaims,suits,actions,proceedings,investigationsorreviewsand(iii)therearenomaterialjudgments,decrees,injunctions,rulesorordersofanycourt,governmentaldepartment,commission,agency,instrumentalityorauthorityoranyarbitratorapplicabletCompanyoranyoftheCompanySubsidiaries.Section4.8RegistrationStatementandProxyStatement.NoneoftheinformationsuppliedortobesuppliedbyoronbehalfofCompanyforinclusionorincorporationbyreferenceintheproxystatement,indefinitiveform,relatingtothemeetingoftheCompanyshareholderstobeheldinconnectionwiththeMerger(the"ProxyStatement")will,,atthedatemailedtoshareholdersandatthetimeofthemeetingofshareholderstobeheldinconnectionwiththeMerger,containanyuntruestatementofamaterialfactoromittostateanymaterialfactrequiredtobestatedthereinornecessaryinordertomakethestatementstherein,inlightofthecircumstancesunderwhichtheyaremade,notmisleading.TheProxyStatementwillcomplyastoforminallmaterialrespectswiththeprovisionsoftheSecuritiesActandtheExchangeActandtherulesandregulationsthereunder.Section4.9EnvirontnentalProtection.ExceptassetforthinSection4.9oftheParentDisclosureScheduleorintheParentSECReportsfiledpriortothedatehereof:(a)Compliance.TheoperationandactivitiesoftheCompanyandeachoftheCompanySubsidiariesare,andhavebeen,inmaterialcompliancewithallEnvironmentalLaws(asdefinedinSection4.9(g)(ii))applicabletotheRetainedAssets;andneitherParent,CompanynoranyoftheCompanySubsidiarieshasreceivedanycommunication(writtenororal),fromanypersonorGovernmentalAuthoritythatallegesthatCompanyoranyoftheCompanySubsidiariesisnotinsuchcompliancewithapplicableEnvironmentalLaws.(b)EnvironmentalPet7nits.CompanyandeachoftheCompanySubsidiarieshasobtainedorhasappliedforallmaterialenvironmentalhealthandsafetypermitsandallothergovernmentallicenses,permits,andauthorizations(collectively,the"EnvironmentalPermits")necessaryfortheconstructionoffacilitiesconstitutingpartoftheRetainedAssetsortheownershiporoperationofsuchfacilitiesorRetainedAsset,anallsuchEnvironmentalPermitsareingoodstandingor,whereapplicable,arenewalapplicationhasbeentimel iledandispendingagencyapproval,an'dCompanyandtheCompanySubsidiariesareinmaterialcompliancewithalltermsandconditionsoftheEnvironmentalPermits..j(c)EnviromneirtalClaims.ThereisnomaterialEnvironmentalClaim(asdefinedinSection4.9(g)(i))pending(i)againstCompanyorany.oftheCompanySubsidiariesorCompanyJointVentures,(ii)tothebestknowledgeofParentand,Company,againstanypersonorentitywhoseliabilityforanyEnvironmentalClaimCompanyoranyoftheCompanySubsidiaries,hasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw,or(iii)againstanyrealorper'sonalpropertyoroperationswhichCompanyoranyoftheCompanySubsidiariesownsorformerlyownedor,tothebestknowledgeofParentandCompany,anyrealorpersonalpropertyoroperationswhichCompanyoranyof,theCompanySubsidiariesleasesormanagesorformerlyleasedormanaged,ineachcase,inwholeorinpart.I(d)Releases.ParentandCompanyhavenoknowledgeofanymaterialReleases(asdefinedinSection4.9(g)(iv))ofanyHazardousMaterial(asdefinedinSection4.9(g)(iii)),thatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaimagainstCompanyoranyoftheCompanySubsidiaries,oragainstanypersonorentitywhoseliabilityforanymaterialEnvironmentalClaimParentoranyoftheCompanySubsidiarieshasormayhaveretainedorassumedeithercontractuallyorbyoperationoflaw.(e)Predecessors.ParentandCompanyhavenoknowledge,withrespecttoanypredecessorofCompanyoranyoftheCompanySubsidiaries,ofanymaterialEnvironmentalClaimpendingorthreatened,orofanyReleaseofHazardousMaterialsthatwouldbereasonablylikelytoformthebasisofanymaterialEnvironmentalClaim.(f)Disclosure.ParentandCompanyhavedisclosedt'oAuthorityorL'IPASuballmaterialfactswhichParentreasonablybelievesformthebasisofamaterialEnvironmentalClaimarisingfrom(i)thecostofCompanypollutioncontrolequipmentcurrentlyrequiredorknowntoberequiredinthefuturewithrespecttotheRetainedAssets;(ii)currentCompanyremediationcostsorCompanyremediationandsitemonitoringcostsnowntoberequiredinthefuturewithrespecttotheRetainedAssets;or(iii)anyotherenvironmentalmatterfectingCompanywithrespecttotheRetainedAsse4.(g)AsusedinthisAgreement;(i)"EnvironmentalClaim"meansanyandalladministrative,regulatoryorjudicialactions,suits,.demands,demandletters,directives,claims,liens,investigations,proceedingsornoticesofnoncomplianceorviolation(writtenororal)byanypersonorentity(includinganyGovernmentalAuthority)allegingpotentialliability(including,withoutlimitation,potentialresponsibilityfororliabilityforenforcement,investigatorycosts,cleanupcosts,governmentalresponsecosts,removalcosts,remedialcosts,naturalresourcesdamages,propertydamages,personalinjuriesorpenalties)arisingoutof,basedonorresultingfrom(A)thepresence,orReleaseorthreatenedReleaseintotheenvironment,ofanyHazardousMaterialsatanylocation,whetherornotowned,operated,leasedormanagedbyCompanyoranyoftheCompany,SubsidiariesorCompanyJointVenturesandconstitutingaportionoftheRetainedAssets(forpurposesofthisSection4.9);or(B)circumstancesformingthebasisofanyviolation,orallegedviolation,ofanyEnvironmentalLawwithrespecttotheRetainedAssets;or(C)anyandallclaimsbyanythirdpartyseekingdamages,contribution,indemnification,costrecovery,compensationorinjunctivereliefresultingfromthepresenceorReleaseofanyHazardousMaterialswithrespecttotheRetainedAssets.(ii)"EnvironmentalLaws"mea'nsallfederal,state,locallaws;ordinances,rulesandregulationsrelatingtohealthandsafety,pollution,theenvironment(including,withoutlimitation,ambientair,surfac'ewater,groundwater,landsurfaceorsubsurfacestrata)orprotectionofhumanhealthasitrelate'stotheenvironmentincluding,withoutlimitation,lawsandregulationsrelatingtoReleasesorthreatenedReleasesofHazardousMaterials,orotherwiserelatingtothemanufacture,processing,distribution,use,treatment,storage,disposal,transportorhandlingofHazardousMaterials.t(iii)"HazardousMaterials"means(A)anypetroleumorpetroleumproducts,radioactivematerials,asbestosinanyformthatisorcouldbecomefriable,ureaformaldehydefoaminsulation,and.transformersD-13 orotherequipmentthatcontaindielectricfluidcontainingpolychlorinatedbiphenyls("PCBs");and(Banychemicals,'materialsorsubstanceswhicharenowdefinedasorincludedinthe,definitionof"hazardoussubstances","hazardouswastes","hazardousmaterials","extremelyhazardouswastes","restrictedhazardouswastes","toxicsubstances","toxicpollutants",orwordsofsimilarimport,underanyEnvironmentalLaw;and(C)anyotherchemical,material,substanceorwaste,exposureto.whichisnowprohibited,limitedorregulatedunderanyEnvironmentalLawinajurisdictioninwhichCompanyoranyoftheCompanySubsidiariesorCompanyJointVenturesoperatesusing'anyRetainedAssets(forpurposesofthisSection4.9).h(iv)"Release"meansanyrelease,spill,emission,leaking,injection,deposit,disposal,discharge,dispersal,leachingormigrationintotheatmosphere,surfaceorsubsurfacesoil,surfacewater,saltwatershorelineorfloorbottom,groundwaterorpropertyfromoraffectinganyRetainedAssets.Section4.10RegulationasaUtility.ExceptassetforthinSection4.10oftheParentDisclosureSchedule,neitherCompanynorany"subsidiarycompany"or"affiliate"(assuchtermsaredefinedinthe1935Act)ofCompanyissubjecttoregulationasapublicutilityorpublicservicecompany(orsimilardesignation)byanystateintheUnitedStatesother-thanNewYorkoranyforeigncountry.Section4.11VoteRequired.Thefollowingaretheonlyvotes("CompanyShareholderApproval")oftheholdersofanyclassorseriesofthecapitalstockofCompanyoranyofitssubsidiariesrequiredtoadoptthisAgreement,theotherBasicAgreementsandtheothertransactionscontemplatedherebyandthereby:(a)theadoptionofthisAgreementbytwo-thirdsofthevotesentitledtobecastbyallholdersofCompanyCommonStockandCompanyPreferredStock(otherthantheRedeemablePreferredStockredeemedinaccordancewithSection2.1(c)(ii)),votingtogetherasasingleclass(witheachshareentitledtoonevote,exceptthatCompanyPreferredStockwith$25parvalueisentitledtoonly1/4votepershare)(b)theadoptionofthisAgreementbyamajorityofthevotesentitledtobecastbyallholdersCompanyPreferredStock(otherthansuchRedeemablePreferredStock),votingtogetherasasingleclas.(witheachshareentitledtoonevote,exceptthatCompanyPreferredStockwith$25parvalueisentitledtoonly1/4votepershare);(c)theadoptionofthisAgreementbyamajorityofthevotesentitledtobecastbyallholdersofCompanyCommonStock,votingseparatelyasaclass;and(d)theadoptionofthisAgreementbyamajorityofthevotesentitledtobecastbyholdersofSeriesAAPreferredStockandeachseriesofNonredeemablePreferredStock,ineachcasevotingasaseparateclass.Section4.12Insurance.ExceptassetforthinSection4.12oftheParentDisclosureSchedule,CompanyandeachoftheCompanySubsidiariesis,andhasbeencontinuouslysinceJanuary1,1991,insuredwithfinanciallyresponsibleinsurersinsuchamountsandagainstsuchrisksandlossesasarecustomaryinallmaterialrespectsforcompaniesconductingthebusinessasconductedbyCompanyandtheCompanySubsidiariesduringsuchtimeperiod.ExceptassetforthinSection4.12oftheParentDisclosureSchedule,neitherParent,CompanynoranyoftheCompanySubsidiarieshasreceivedanynoticeofcancellationorterminationwithrespecttoanymaterialinsurancepolicyofCompanyoranyoftheCompanySubsidiaries.TheinsurancepoliciesofCompanyandeachoftheCompanySubsidiariesarevalidandenforceablepoliciesinallmaterialrespects.,hSection4.13Disclosure.NorepresentationsorwarrantiesbyParentorCompanyinthisAgreementandnostatementcontainedinanydocumentfurnishedbyParentorCompanytoAuthorityorLIPASubpursuanttotheprovisionsof,orinconnectionwiththetransactionscontemplatedbythisAgreement,willcontainanyuntruestatementofmaterialfactoromitanymaterialfactnecessary,inlightofthecircumstancesunderwhichitwmade,inordertomakesuchstatementnotmisleading.
ARTICLEV'EPRESENTATIONSANDWARRANTIES'OFAUTHORITY,AND''IPASUBAuthorityrepresentsandwarrantstoParentandCo'mpanyasfollows:IISection5.1Organization.Authorityisacorporatemunicipalinstrumentalityhand'politictaisubdivisionoftheStateofNew;YorkandwascreatedbylegislationoftheStateofNewYork(Chapter517ofthe1986LawsofNewYork).LIPASubisacorporationdulyorganized,validlyexistingandingoodstandingunderthelawsofitsjurisdictionofincorporationororganization.EachofAuthorityandLIPA,Subthasallrequisitecorporatepowerandauthority,andhasbeendulyauthorizedbyallnecessaryapprovalsandorderstoown,leaseandoperateitsassetsandpropertiestotheextentowned,leasedandoperatedandtocarryonitsbusinessasitisnowbeingconductedandisdulyqualifiedandingoodstaiidingtodobusinessineachjurisdictioninwhichthenatureofitsbusinessortheownershiporleasingofitsassetsandpropertiesmakessuchqualificationnecessary.,,Section5.2AuthoritytNon-Contravention;StatutoryApprovals;Compliance.tt(a)Authority.EachofA'uthorityandLIPASubhasallrequisite'powera'ndauthority"toenterintothisAgreementandeachoftheotherBasicAgreeme'ntstowhichitisapartyand,subjecttotheAuthorityRequiredStatutoryApprovals(asdefinedinSection5:2(c))toconsummatethetransactionscontemplatedherebyandthereby.Theexecution.anddeliveryofthisAgreementbyeachofAuthorityandLIPASubandeachofthe,otherBasicAgreementstowhichitisapartyandtheconsummation,byeachof.AuthorityandLIPASubofthetransactionscontemplatedherebyandtherebyhave,beendulyauthorizedbytheBoardofTrusteesofAuthorityand.theBoard,ofDirectorsofLIPASub;noother.corporateproceedingsonthepartofeachofAuthorityandLIPASubarenecessary,toauthorizethisAgreement,eachof,tPeother,BasicAgreementstowhich,itisapartyor-.toconsummatethetransactions.contemplatedherebyand,thereby.ThisAgreementhasbeendulyandvalidlyexecutedanddeliveredbyAuthority,andLIPASuband,assumingthedueauthorization,executionand,deliveryhereofbytheothersignatorieshereto,this,Agreementconstitutes,thevalid,and.bindingobligationtofAuthoritydLIPASub,enforceableagainsteachofAuthorityandLIPASubin,accordancewithitsterms...tt(b)Non-Contraventioli.TheexecutionanddeliveryofthisAgreementandeachofthe"otherBasicAgreementsbyAuthorityorLIPASubdoesnot,andtheconsummationofthetransactionscontemplatedherebyand'therebywill'not,resultinamaterialViolationpursuanttoany'provisions,of(i)"tliecertificateofincorporation,by-lawsorsimilargoverningdocumentsofLIPASub,(ii)subjecttoobtainingtheAuthorityRequired,StatutoryApprovals,.anystatute,law,ordinance,rule,regulationrjudgment,decree,order;injunction,writ,permitor,licenseofanyGovernmentalAuthorityapplicabletq,AuthorityorLIPASubog(iii)anyprovisionsofany,materialnote,bond,,mortgage,indenture,deed;,oftrustlicense,franchise,permit,concession,contract,leaseor'otherinstrument,obligationoragreement.ofanykindtowhichAulhorityorLIPASubisapartyorbywhichitoranyofitspropertiesorassetsmaybebound.lItI'l't""~(c)StatutoryApprovals.Nodeclaration,filingor,registrationvtith,ornoticeto,orauthorization,consentorapprovalof,anyGovernmentalAuthorityisnecessaryfortheexecutionanddeliveryofthisAgreementandeachoftheotherBasicAgreementsbyeachofAuthorityandLIPASubortheconsummationbyeachofAuthorityandLIPASubofthetransactionscontemplatedhereby-and'thereby,exceptassetforthinwritingbyAuthority(the"AuthorityRequiredStatutoryApprovals").>'tttSection5.3Disclosure,NorepresentationsorwarrantiesbyAuthorityorLIPASubinthisAgreementandnostatementcontainedinanydocumentfurnishedbyAuthorityorLIPASub,toParentorCompanypursuanttotheprovisionsof,orinconnectionwiththetransactions,contemplatedby,thisAgreement,willcontainanyuntruestatementofmaterialfactoromitanymaterialfactnecessary,inlightof,.thecircumSlancepunderwhichitwasmade,inordertomakesuchstatementnotmisleading.l'ection5.4OwnershipofLIPASub;NoPriorActivities.,LIPASubisadirect,whollyownedsubsidiary,Authorityandwasforme'dsolely,forthepurposeofengaginginthe,trarisactionscontemplatedbythisreement.AsofthedatehereofandtheEffectiveTime,exceptforobligationsorliabilitiesincurredin connectionwithitsincorporationororganizationandthetransactionscontemplatedbythisAgreementanexceptforthisAgreementandanyotheragreementsorarrangementscontemplatedbythisAgreement,LIPASubhasnotandwillnothaveincurred,directlyorindirectly,throughanysubsidiaryoraffiliate,anyobligationsorliabilitiesorengagedinanybusinessactivitiesofanytypeorkindwhatsoeverorenteredintoanyagreementsorarrangementswithanyperson.IIISection5.5OwnershipofCompanyCommonStockNeitherAuthoritynorLIPASub"beneficiallyowns"(assuchtermisdefinedforpurposesofSection13(d)oftheExchangeAct)anysharesofCompanyCommonStockorCompanyPreferredStock.ARTICLEVICOVENANTSSection6.1CovenantsofParentandCompany.AfterthedatehereofandpriortotheClosingDateorearlierterminationofthisAgreement,ParentandCompanyagreeasfollows,astothemselvesandtoeachoftheCompanySubsidiaries,asthecasemaybe,exceptas'xpresslycontemplatedorpermittedinthisAgreement,theotherBasicAgreementsortotheextenttheotherpartiesheretoshallotherwiseconsentinwriting:(a)OrdinaryCourseofBusiness.WithrespecttotheRetainedAssetsonly,CompanyandtheCompanySubsidiariesshallcarryontheirrespectivebusinessesintheusual,regularandordinarycourseinsubstantiallythesamemannerasheretoforeconductedanduseallcommerciallyreasonableeffortstopreserveintacttheirpresentbusinessorganizationsandgoodwillandpreservethegoodwillandrelationshipswithcustomers,suppliersandothershavingbusinessdealingswiththem.CompanyandtheCompanySubsidiariesmay,withthepriorapprovalofAuthorityor'IPASub,engageintransactionsoutoftheordinarycourseofbusinessrelatingtotheRetainedAssets,suchapprovalnottobeunreasonablywithheldor'delayed;provided,however,thatthefollowingwillriotbesubjecttoAuthority'sorLIPASub'spriorapproval:anytransactioninvolvingtheTransferredAssets;provided,'however,thatsuchapprovalwillberequiredfor(A)anytransactionthatwouimpairtheapplicableTransfereeSubsidiary'sabilitytoperformitsobligationsunderanyBasicAgreementthatwouldviolateanytermoftheGenerationPurchaseRightAgreementor(B)anytrarisactionwherebyCompanyentersintoacapacityorfransmission'urchaseagreementrelatingtothepurchaseofmorethan75megawattsofcapacityorhavingatermwhichextendsbeyondMarch19,1999.I'xceptassetforthinSection6.1(a)of'theParentDisclosureScheduleorascontemplatedinthisSection6.1(a),'neitherCompanynoranyoftheCompanySubsidiariesshallmakeanychangeinthelineofbusinessinvolvingtheRetainedAssetsinwhichitengagesasofthedatehereofwhichinvolvesanymaterialinvestmentofassetsorresourcesoranymaterialexposuretoliabilityorlosstotheRetainedAssetstakenasawhole.(b)CharterDocuments.Companyshallnotamendnorproposetoamenditscertificateofincorporation,by-lawsor'regulations,orsimilarorganizationaldocuments,exceptascontemplatedhereinorassetforthinSection6.1(b)oftheParentDisclosureSchedule.(c)NoAcquisitions.ExceptassetforthinSection6.1(c)oftheParentDisclosureScheduleorascontemplatedinSection6.1(a),neitherCompanynoranyoftheCompanySubsidiariesshallacquire,orpubliclyproposetoacquire,oragreetoacquire,bymergerorconsolidationwith,orbypurchaseorotherwise,inatransactionrelatingtotheRetainedAssets,asubstantialequityinterestinorasubstantialportionoftheassetsof,any'usinessoranycorporation,partnership,association"orotherbusinessorganizationordivisionthereof,norshallanypartyacquireoragreetoacquire,inatransactionrelatingtotheRetainedAssets,amaterialamountofassetsotherthanintheordinarycourseofbusinessconsistentwithpastpractice.(d)CapitalExpenditures.ExceptassetforthinSection6.1(d)oftheParentDisclosureSchedule,orasrequiredbylaw,neitherCompanynoranyoftheCompanySubsidiariesshallmakecapitalexpendituresorcommitmentsrelatingtotheRetainedAssetsinanaggregateamountsignificantlylessorsignificantlymoreththeamountsprojectedtherefor'inCompany's1996electricratefiling.
t(e)NoDispositions.ExceptassetforthinSection6.1(e)oftheParentDisclosureScheduleorascontemplatedbySection6.1(a),singularlyorintheaggregate,neitherCompanynoranyoftheCompanySubsidiariesshallsell,lease,license,encumber,orotherwisedisposeof,anyof,theRetainedAssets,otherthanencumbrancesordispositionsintheordinarycourseofitsbusinessconsistentwithpastpracticeandotherthandispositionsofRetainedAssetsbyCompanyandtheCompanySubsidiariesoflessthan$10millionintheaggregate;provided,however,thatnotwithstandingtheforegoing,neitherCompanynoranyoftheCompanySubsidiariesshallsell,lease,license,encumberorotherwisedisposeof,anyattachmentorsimilarrights.(f)Indebtedness.ExceptascontemplatedbyanyBasicAgreement,neitherCompanynoranyoftheCompanySubsidiariesshallincurorguaranteeanyindebtedness(includinganydebtborrowedorguaranteedorotherwiseassumedincluding,withoutlimitation,theissuanceofdebtsecuritiesorwarrantsorrightstoacquiredebt)orenterintoany"keepwell"orotheragreementtomaintainanyfinancialstatementconditionofanotherpersonorenterintoanyarrangementhavingtheeconomiceffectofanyoftheforegoingotherthanincurrencestorefinance;existingindebtedness,incurrencesofdebtthatwillbeassumedbyParentand/oroneormoreTransfereeSubsidiariesattheClosingandotherthanassetforthinSection6.1(f)oftheParentDisclosureSchedule.(g)Transmission,Generation.ExceptasrequiredpursuanttotariffsonfilewiththeFERCasofthedatehereof,in'theordinarycourseofbusinessconsistentwithpastpractice,orassetforthinSection6.1(g)oftheParent.DisclosureSchedule,neitherCompanynoranyoftheCompanySubsidiariesshall(i)commenceconstructioriofany'additionalelectricgenerating;transmissionordeliverycapacity,or(ii)obligateitselftopurchaseorotherwiseacquire,ortosellorotherwisedisposeof,ortoshare,anyadditionalelectricgenerating,transmissionordeliverycapacityexceptasprovidedinclause(B)ofthesecondprovisotoSection6.1(a)orassetforthinthebudgetofCompanyonthedatehereofassetforthinSection6.1(d)oftheParentDisclosureSchedule.(h)Accounting.ExceptassetforthinSection6.1(h)oftheParentDisclosureSchedule,Parentandompanyshallnot,norshallParentandCompanypermitanyoftheCompanySubsidiariesto,makeanychangestheiraccountingmethodsorprinciples,exceptasrequiredbylaw,rule,regulationorGAAP.(i)AfhliateTransactions.ExceptassetforthinSection6.1(i)oftheParentDisclosureSchedule,neitherCompanynoranyoftheCompanySubsidiariesshallenterintoanymaterialagreementorarrangementwithanyoftheirrespectiveaffiliates(otherthanthosewholly-ownedsubsidiarieswhichwillconstituteRetainedAssets)ontermsmateriallylessfavorabletosuchpartythancouldbereasonablyexpectedtohavebeenobtainedwithanunaffiliatedthirdpartyonanarm'-lengthbasis.(t)Cooperation,Notification.ParentandCompanyshall,andshallcausetheCompanySubsidiariesto,(i)conferonaregularandfrequentbasiswithoneormorerepresentativesofAuthorityorLIPASubtodiscuss,subjecttoapplicablelaw,materialoperationalmattersandthegeneralstatusofitsongoingoperations;(ii)promptlynotifyAuthorityorLIPASubofanysignificantchangesinitsbusiness,properties,assets,condition(financialorother),resultsofoperationsorprospects;(iii)adviseAuthorityorLIPASubofanychangeoreventwhichhashador,insofarasreasonablycanbeforeseen,isreasonablylikelytoresultinaMaterialAdverseEffect;and(iv)promptlyprovideAuthorityorLIPASubwithcopiesofallfilirigsmadebyParentorCompanyoranyoftheCompanySubsidiarieswithanystateorfederalcourt,administrativeagency,commissionorotherGovernmentalAuthorityinconnectionwithanyBasicAgreementandthetransactionscontemplatedherebyandtherebyortheRetainedAssets.(k)RateMatters.ParentandCompanyshall,andshallcausetheCompanySubsidiariesto,notifyAuthorityorLIPASubofanychangesinitsorCompany'sratesorcharges(otherthanpass-throughfuelratesorcharges,butincluding,withoutlimitation,gasratesorcharges),standardsofserviceoraccountingfromthoseineffectonthedatehereof.WithouttheconsentofAuthority(whichconsentwillnotbeunreasonablywithheld),ompanyshallnotfileorprosecuteanyratecaseorothernonroutineproceedingbeforethePublicServicemmissionoftheStateofNewYork(the"PSC")orFERCoranyappealtherefrom,exceptforcasesor proceedings(i)relatingsolelytopass-throughfuelorgasratesorcharges,(ii)requiredto*bemadebyorderothePSCorFERC,(iii)relatingsolelytotheTransferredAssetsor(iv)involvingcommercialorcontractualdisputeswhicharerequiredtoberesolvedthroughsuchproceedings;provided,however,'thatifCompanyreasonablybelievesthatamatterthreatensthefinancialviabilityofCompany,itmaydefendorprosecutesuchmatterbeforethePSCorFERC.EitherinseekingconsentfromAuthorityorifCompanyhastheright'todefendorprosecuteamatterascontemplatedherein,Companyshallprovide30dayspriornoticetoAuthority(including,uponrequestofAuthority,copiesofdraftdocumentation)ofanyproposedfilingwiththePSCorFERCunlessCompanyreasonablydeterminesthatcircumstancesrequireactionwithinsuch30dayperiod,inwhicheventCompany"shallprovideAuthoritywithasprompt'noticeasispracticable.Thepartieswillconsultwitheachotherwithrespecttoallmattersdescribedintheprecedingtwosentences.(1)Third-PartyConsents.ParentandCompanyshall,"andshallcausetheCompanySubsidiariesto,useallcommerciallyreasonableeffortstoobtainallParentRequiredConsents.Parentshall,promptlynotifyAuthorityorLIPASubofanyfailureorprospectivefailure.toobtainanysuchconsentsand,ifrequestedbyAuthorityorLIPASub,shallprovidecopiesofallParentRequiredConsentsobtainedbyParentorCompanytoAuthorityorLIPASub.(m)NoBreach,Etc.ParentandCompanyshallnot,norpermitanyoftheCompanySubsidiariesto,willfullytakeanyactionthatwouldorisreasonablylikelytoresultinamaterialbreachofanyprovisionofanyBasicAgreement,asthecasemaybe,orinanyofitsrepresentationsandwarrantiessetforthinanyBasicAgreement,asthecasemaybe,beinguntrueonandasoftheClosingDateoranyconditiontotheirobligationtoclosenotbeingsatisfied.(n)Tax-ExemptStatus.ParentandCompany,shallnot,norshallParentand'Company,permit,anyCompanySubsidiaryto,takeanyactionth'atwouldlikelyjeopardizethequalificationofCompany'soutstandipgrevenuebondswhichqualifyonthedatehereofunderSection142(a)oftheCodeas"exemptfacilitybonds"orastax-exemptindustrialdevelopmentbondsunderSection103(b)(4)of,theInternalRevenueCodeof1954,asamended,priortotheTaxReformActof1986,(o)TaxMatters.ExceptwithrespecttothematterssetforthintheLILCOTax'Matters'DisclosuieScheduleattachedtoScheduleD,Parent,andCompanyshallnotmakeorrescindanymaterialexpressordeemedelectionrelatingtotaxes,settle(otherthan,withinestablishedreserves)orcompromiseanymaterialclaim,action,suit,litigation,proceeding,arbitration,investigation,auditorcontroversyrelatingtotaxes,orchangeanyofitsmethodsofreportingincomeordeductionsforfederalincometaxpurposesfromthoseemployedinthepreparationoftheirrespectivefederalincometaxreturnsforthetaxableyearendingDecember31,1995,exceptasmayberequiredbyapplicablelaw.(p)Contracts.SubjecttoSection6.1(a)andexceptassetforthinSection6.1(p}ofParentDisclosureSchedule,ParentandCompanyshallnot,otherthanintheordinarycourseofbusinessconsistent"withpastpractice,modify,amend,terminate,reneworfailtousereasonablebusinesseffortstorenewanymaterialfranchise,contractoragreementtowhich,CompanyoranyCompanySubsidiaryisapartyorwaive,releaseorassignanymaterialrightsorclaims,provided,however,'thatParentandCompanyshallnotenterintonewpowersupplyagreements,oramendexistingpowersupplyortransmissionagreements,withoutprioraIiprovalofAuthority(whichapprovalwillnotbeunreasonablywithheld).(q)Insurance.ParentandCompany"shall,andshallcausetheCompanySubsidiariesto,maintainwithfinanciallyresponsibleinsurancecompaniesinsuranceinsuchamountsandagainstsuchrisksandlossesasarecustomaryforcompaniesengagedintheelectricandgasutilityindustryandemployingmethodsofgeneratingelectricpowerandfuelsourcessimilarto'thosemethodsemployedandfuelsusedbyParent,CompanyortheCompanySubsidiaries.'(r)Permits.ParentandCompanyshall,andshallcausetheCom'panySubsidiariesto,usereasonableeffortstomaintainineffectallexistinggovernmentalpermitspursuanttowhichCompanyortheCompaSubsidiariesownandoperateanyRetainedAsset.
t(s)CompliancewithLaivtPermits.TheoperationsandactivitiesofCompany,andtheownership,possession,maintenanceandoperationoftheRetainedAssets,havecompliedandareincompliance,inallrespects,withallapplicablefederal,stateandlocallaws,statutes,acts,regulations,codes,ordinances,rules,judgments,,orders,decrees,judgments'njunctions,ornoticesordemand,lettersissuedorpromulgatedorapprovedthereunder("Applicable,Law"),ExceptassetforthinSection6.1(s)ofParentDisclosureSchedule,Companyhasallmaterialfederal,state,andlocalgovernmentallicenses,permits,approvals,franchisesandotherauthorizations("Permits")asarenecessaryinorderforittoconductthebusinessconductedwiththeRetainedAssets.NomaterialviolationshavebeenrecordedinrespectofanyPermitsandnoproceedingispendingor,totheknowledgeofParent-or.Company,threatenedwjthrespecttothelimitationorrevocationofanyPermit.Section6.2CovenantsofAuthorityandUPASub.(a)Filings.AuthorityandLIPASubshallpromptlyprovideParentandCompanywithcopiesofallfilingsmadebyAuthorityorLIPA,Subwithanystateorfederalcourt,administrativeagency,commissionorotherGovernmentalAuthorityinconnectionwiththisAgrt;ementoranyBasicAgreementandthetransactionscontemplatedherebyandthereby.(b)Third-PartyConsents.AuthorityandLIPASubshalluseallcommerciallyreasonableeffortstoobtainallAuthorityRequiredConsents.AuthorityshallpromptlynotifyParentandCompanyofanyfailureorprospectivefailuretoobtainanysuchconsentsand,ifrequCstedbyParentorCompany,shallprovidecopiesofallAuthorityRequiredConsentsobtainedbyAuthorityandLIPASubtoParentandCompany.(c)NoBreach,Etc,,AuthorityandLIPA;Subshal(,notwillfullytakeanyactionthatwouldorisreasonablylikelytoresultin(x)amaterialbreachof.anyprovisionofthisAgreementoranyotherBasicAgreement,asthecasemaybe,(y)anyoftheirrepresentationsandwarrantiessetforthinthisAgreementorinanyotherBasicAgreementbeinguntrueonandasoftheClosingDateor(z)anyconditiontotheirobligationsoclosenotbeingsatisfied.ARTICLEVIIADDITIONALAGREEMENTSSection7.1AccesstoInfortnation.Uponreasonablenotice,eachpartyshallaffordtotheofficers,employees,accountants,counsel,investmentbankers,financialadvisors,engineersandotherrepresentativesoftheother(collectively,'Representatives")reasonableaccess,'uringnorinalbusinesshoursthroughouttheperiodpriortotheEffectiveTime,toallofitsproperties,books,contracts,commitmentsandrecordsand,duringsuchperiod,eachpartyshallfurnishpromptlytotheother(i)accessto'achreport,scheduleandotherdocumentfiledorreceivedbyitpursuanttotherequirementsoffederalorstatesecuritieslawsorfiledwithorsenttotheSEC,theFERC,theNRC,theDepartmentofJustice,theFederalTradeCommission,thePSCoranyotherfederalorstateregulatoryagencyorcommission,and(ii)accesstoallinformationconcerningthemselves,theirsubsidiaries,directorsandofficersandsuchothermattersasmaybereasonablyrequestedbytheotherpartyinconnectionwithanyfilings,applicationsorapprovalsrequiredorcontemplatedbythisAgreementorforanyotherreasonrelatedtothetransactionscontemplatedby,thisAgreement.InadditionCompanyandParentshallpromptlyfurnishto'AuthorityuponrequestallsuchinformationasmaybenecessaryordesirableinorderthatAuthority,mayobtainthefinancingreferredtoinSection8.1(f).V~lSection7.2Proxy,StatementandRegistrationStatement.CompanywillprepareandfilewiththeSECassoonasreasonablypracticableafterthedatehereoftheregistrationstatementrelatingtotheParentShares(the"RegistrationStatement")andtheProxyStatement.ThepartiesheretoshalleachusereasonableeffortstocausetheRegistrationStatementtobedeclaredeffectiveundertheSecuritiesActaspromptlyaspracticableafterchfiling.Eachofthepartiesheretoshallfurnishallinformationconcerningitselfwhichisrequiredorstomaryfor'nclusionin,theProxy/RegistrationStatement, Section7.3ShareholderApproval.Companyshall,assoonasreasonablypracticableafterthedathereof,(i)takeallstepsnecessarytodulycall,givenoticeof,conveneandholda'pecialmeetingofitsshareholdersforthepurposeofsecuringtheapprovalofitsshareholders,(ii)distributetoitsshareholderstheProxyStatementin.accordancewithapplicablefederalandstatelawandwithitsRestatedCertificate.ofIncorporationandby-laws,(iii)subjecttothefiduciarydutiesofitsBoard'ofDirectors,recommendto-its'hareownerstheadoptionofthis"Agreementandthetransactionscontemplatedherebyand(iv)cooperateandconsultwithAuthoritywithrespecttoeachoftheforegoingmatters.IntheeventthatduringthespecialmeetingofshareholdersreferredtoabovetheCompanyShareholderApprovalisinitiallynotobtained,CompanyshalladjournthemeetingforareasonableperiodandCompanyandParent'shalltakesucha'ctionsasmaybenecessaryordesirableinordertoobtaintheCompanyShareholderApprovalwhensuchmeetingisreconvened.Section7.4DisclosureSchedule.(a)Onthedatehereof,ParenthasdeliveredtoAuthorityaschedule(the"ParentDisclosureSchedule"),accompaniedbyacertificatesignedbytheChiefFinancialOfficerofCompanystatingthattheParentDisclosureScheduleisbeingdeliveredpursuanttothisSection7.4(a).TheParentDisclosureScheduleconstitutesanintegralpartofthisAgreementandmodifies'therepresentations,warranties,covenantsoragreementsofParentheretocontainedhereintotheextentthatsuchrepresentations,warranties,covenantsoragreementsexpresslyrefertotheParentDisclosureSchedule.(b)Notlaterthan30daysbefore"thedatescheduledfortheClosing,ParentshalldelivertoAuthorityarevisedParent'DisclosureSchedule(the"UpdatedParentDisclosureSchedule"),accompaniedbyacertificatesignedbytheChiefFinancialOfficer'ofCompanystatingthattheUpdatedParentDisclosureScheduleisbeingdeliveredpursuanttothisSection7.4(b).TheUpdatedParentDisclosureScheduleshallcontaintheinformationParentbelieveswouldberequiredtocomplywiththeconditionsetforthinSection8.2(b)(butfor'urposessolelyofthisSection7.4(b),asifsuchSection8.'2(b)didnotcontainanyreferencetoMaterialAdverseEffect).NoliabilityshallariseunderanyBasicAgreementbyreasonofthedeliveryoftheUpdatedParentDisclosureScheduleor,aftertheEffectiveTime,byreasonofanymatterdisclosedtherein.Section7.5RegulatoryMatters.Eachpartyheretoshallcooperateanduseitsbesteffortstopromptprepareandfileallnecessarydocumentationandtoeffectallnecessaryapplications,notices,petitions,filingandotherdocuments,andshalluseallcommerciallyreasonableeffortstoobtainallnecessarypermits,consents,approvalsandauthorizationsofallGovernmentalAuthorities,necessaryoradvisabletoconsummatethetransactionscontemplatedbythisAgreement,including,withoutlimitation,theParentRequiredStatutoryApprovalsandtheAuthorityRequiredStatutoryApprovals.Parent,Company,AuthorityandLIPASubshallcooperateingoodfaithandconsultwitheachotheronallcomponentsof,significantstepstowardsthecompletionof,andsignificantamendmentsto,theapplicationstoobtaintheParentRequiredStatutoryApprovalsandtheAuthorityRequiredStatutoryApprovals,andwithrespecttomaterialfilings,communications,agreements,arrangementsorconsents,writtenororal,formalorinformal,relating'toapplicationsforsuchApprovals.Section7.6PublicAnnouncements.Parent,Company,AuthorityandLIPA'ubwillcooperatewitheachotherinthedevelopmentanddistributionofallnewsreleasesand'otherjointpublicinformationdisclosuieswithrespecttothisAgreementandanyotherBasicAgreementorany'fthe'ransactionscontemplatedhereby.Section7.7Confidentiality.(a)CoinpanyRequest.ThepartiesacknowledgethatcertaininformationthatmaybefurnishedpursuanttotheprovisionsofthisAgreementmaybeconfidentialandproprietarytoCompany.TheCompanyandParenteachacknowledgesthatAuthoritymayberequiredtodiscloseinformationuponrequestunderapplicablelaw.TheCompanyshallhavetherighttorequestAuthorityinwritingnottopubliclydiscloseanyinformationwhichCompanybelievestobeconfidentialorproprietaryandnotsubjecttopublicdisclosure"underapplicablelaw,andsuchrequestwillbeaccompaniedbyanexplanationofitsreasonsforsuchbelief.Anyinformationwhichisthesubjectofsucharequestshallbeclearlymarkedonallpages,-shallbebound,andshallbephysicallyseparatefromallnon-confidentialandnon-proprietaryinformation.AtCompany'srequest,AuthorityanditsRepresentativesgivenaccesstosuchinformationshallexecuteandcomp~withthetermsofaconfidentialityagreementinamutuallyacceptableform,subjecttoapplicablelaw.D-20 (b)AuthorityNon-Disclosure.IfAuthorityreceivesarequestfromthepublicforthedisclosureofanynformationdesignatedasconfidentialorproprietarybyCompanypursuanttosubsection(a)ofthisSection7.7,Authority(1)shallusereasonableefforts,consistentwithapplicablelaw,toprovidenoticetoCompanyoftherequestpriortoanydisclosure,and(2)shallusereasonableefforts,consistentwithapplicablelaw,tokeepinconfidenceandnotdisclosesuchinformationunlessitisentitledtodosopursuanttotheprovisionsofsubsection(c)ofthisSection7.7.Companyshallindemnify,holdharmlessanddefendAuthorityagainstalllossesincurredfromthewithholdingfrompublicdisclosureofinformationdesignatedasconfidentialorproprietarybyCompanyorotherwiserequestedbyCompanytobewithheld.(c)PreviouslyFurnishedInformation.CompanyherebypermitsAuthorityanditsRepresentativestoobtainallinformationpreviouslyfurnishedbyCompanytoBear,Stearns&Co.Inc.andcertainotherpersonspursuanttotheletterdatedOctober11,1995,(asamendedtodate)subjecttothetermsandconditionsofthisSection7.7.Authorityagreesthatallsuchinformation(otherthaninformationdescribedinclauses(1),(2)or(3)ofSection7.7(e))shallbedeemedtobedeliveredtoAuthoritypursuanttotheproceduressetforthinSection7.7(a)forthepurposeofidentifyingconfidentialorproprietaryinformation.(d)RestrictiononUse.AuthorityandLIPASubmaynotuseanyconfidentialorproprietaryinformationdisclosedtoeitherofthembyCompany(otherthaninformationdescribedinclauses(1),,(2)or(3)ofSection7.7(e))intakinganyactiondescribedinclauses(a),,(b),(c)or(d)ofArticleXatanytimeafterthedatehereof.(e)PermittedDisclosures.NotwithstandinganyconfidentialorproprietarydesignationthereofbyCompany,Authoritymaydisclosethefollowing:(1)informationwhichisknowntoAuthoritywithoutanyrestrictionastodisclosureoruseatthetimeitisfurnished,(2)informationwhichisorbecomesgenerallyavailabletothepublicwithoutbreachofanyagreement,(3)informationwhichisreceivedfromathirdpartywithoutlimitationorrestrictiononsuchthirdpartyorAuthorityatthetimeofdisclosure,or(4)followingnoticetoCompanypursuanttosubsection(b)ofthisSection,informationwhich,intheopinionofcounselforAuthority,isrequiredtobedisclosedunderanyapplicablelaw,anorderofacourtofcompetentjurisdiction,orlawfulsubpoena.Section7.8CertainLitigation.(a)ClassSettlement.Afterthedatehereof,CompanyandAuthorityshalljointlyfileanappropriatemotionbeforethecourthavingjurisdictionovertheClassSettlement(ashereinafterdefined)toobtainamodificationofthefinalorderapprovingsuchClassSettlementwhichwouldpermitthepaymentinfullattheClosingofallamountsremairiingunpaidwithrespecttosuchClassSettlement,discountedtosuchpresentvalueasAuthorityandCompanymayagreeandsuchcourtmayapprove.Asusedherein,"ClassSettlement"shallmeantheclasssettlementwhichbecameeffectiveonJune28,1989andresolvedacivillawsuitagainstCompanybroughtunderthefederalRacketeerInfiuencedandCorruptOrganizationsAct.(b)TaxCases.WithrespecttoalltaxcasesrelatingtopropertytaxesorpaymentsinlieuofpropertytaxesassessableagainstanyoftheassetsandpropertiesofCompanyasofthedatehereof,andothersimilartaxclaimsarisingpriortotheClosingDate(whichshallconstituteRetainedAssets),Companywillenterintoappropriatestandstillagreementsandmaintainthecurrentstatusofsuchcases;provided,however,ifanytaxingauthorityincreases,directlyorindirectly,orpurportstoincrease,directlyorindirectly,theassessedvalueofanyTransferredAsset(otherthaninrespectofpropertyadditionsorgeneralincreasesinassessments),thenCompanymaypursueanyjudicialremedyitdeemsadvisableinconnectiontherewith.Notwithstandingtheforegoing,ifanytaxingauthority,atanytimepriortotheClosing,assertsaclaimforpropertytaxesorpaymentsinlieuofpropertytaxeswhichCompanyreasonablybelievesisnotauthorizedbystatuteorassertsarighttovalueataxablepropertyinamethodotherthaninaccordancewithapplicableMewYorkStaterulesandregulations,thenCompanymaytakesuchactionsasitreasonablydeterminestobe'necessaryoradvisabletoprotectitsinterests,butshallnototherwisepursueitsclaimspendingtheClosingortheterminationofthisAgreement.(c)PhaseIRebates.UpontheClosing,ParentwillimmediatelypayAuthority$15millioninrespectofPhaseIjudgmentrelatingtotheShoreham.propertytaxcasefordistributiontoratepayers.
Section7.9Expenses.Allcosts'andexpensesincurredinconnectionwiththisAgreementandanyothBasicAgreementandthetransa'ctionscontemplatedhereby(including,without'imitation,anyterminationfeesandexpensereimbursementspayablebyCompany'pursuantto'theExchangeAgreementortoitsofficersordirectors'nrespectofseverance,'changeofcontrolorsimilaragreements)shallbepaidbythepartyincurringsuchexpenses.Anysuchcost'orexpenseofCompanynotpaidorotherwisedischargedatorpriortotheClosingshallbepaidorreimbursedbyParentandtheTransfereeSubsidiariespursuanttotheParentLiabilitiesUndertakingandshallnotbeincludedintheClosingDateBalanceSheet.Section7.10FurtherAssurances.Eachpartywill,andwillcauseitsSubsidiariesto,executesuchfurtherdocuments,and'instrumentsandtakesuchfurther,actionsasmayreasonablyberequestedbyanyotherparty,inordertoconsummatethetransactionscontemplatedherbyinaccordance'withthetermshereof.'~Section7.11PurchasePriceAllocation.AtorpriortotheClosing,thepartiesshalljointlyprepareandagreetoanallocationforfederalincome,taxpurposespursuanttoSection1060oftheCodeofthepurchasepricepayablebyParentinrespectofthetransferoftheTransferredAssets.';aSection7.12-ReceiptofConsentsandApprovals.'achpartyagreestorespondpromptlyto'anyrequestforanyconsentorapprovalfromanyotherpartycontemplatedbythisAgreementandanythirdpartyconsentorstatutoryapprovalrequiredhereunder.Eachpartyshalldesignaterepresentativeswhoshallbeauthorizedtoaddress'anyrequestfor'nysuchconsentsor'approvals.Anyactofany'uchrepresentativewithrespecttosuchappro'valsandco'nsentsshallbebindinguponthepartythatdesignatessuchrepresentative.A,'It/,Section'7.13,'ertaiitOtherMatters.Thep'royisionssetforthinSchedulesD(Ta'xMatters),E(EmploymentMatters)andF(FutureRights)attachedheretoare.Herebyiricorporatedbyreference'asifsetforthhereinjntheirentirety.USection7.14OpinionsofCounsel.Inaddition,ParentandCompanyshalldelivertoAuthoritysuopinionsofcounselforParentandCompanyastotheagreementstobeenteredinto.inconnectionwiththetransactionscontemplatedbytheBasicagreements,incustomaryformforfinancingtransactions,astothemattersoflawcovered'bytherepresentatio'ris,ofParentandCompanyandtheTransfereeSubsidiariesintheBasicAgreemenis,similarma'tte'rsoflaw"withrespecttosuchotheragreements"andastosuchothermattersoflawasAuthor'itymayreasonablyrequest,togetherwithappropriate'certifiedauthorizingresolutionsandincumbencycertificates.IInARTICLEVIII,',,CONDITIONS,.i,Section8.1ConditionstoEachParty'sObligations.The,respectiveobligationsofeachpartytoeffectthetransactions-contemplatedbythisAgreementshallbesubjecttothesatisfactiononorprior,totheClosingDateofthefollowingconditions:(a)NoInjunction.Notemporaryrestrainingorderorpreliminaryorpermanentinjunctionorotherorderbyanyfederalo'rstatecourtpreventingconsummationofthetransactionscontemplatedbythisAgreementandtheotherBasicAgreementsshalihavebeenissuedandbecontinuingineffect,andthisAgreement,andtheotherBasicAgreementsandthetransactionscontem'platedherebyandtherebyshallnothavebeenprohibitedunderanyapplicablefederalorstatelaworregulation.'b)StatutoryApprovals.'TheParentRequiredStatutoryApprovalsandtheAuthorityRequiredStatutApprovalsshallhavebeenobtainedat'rpriortotheClosingDate,suchapprovalsshallhavebecomeFiD-22 rders(asdefinedbelow)andsuch,FinalOrdersshallnotimposetermsorconditionswhich,intheaggregate,wouldhave,orinsofarasreasonablycanbeforeseen,couldhave,amaterialadverseeffectonthebusiness,assets,financialconditionorresultsofoperationsParent,whichwouldbemateriallyinconsistentwiththeagreenientsofthepartiescontainedhereinorintheBasicAgreementsorwouldhave(or,insofarasreasonablycanbeforeseencouldhave)aMaterialAdverseEffect.A"FinalOrder"meansactionbytherelevantregulatoryauthority)vhichhasnotbeenreversed,stayed,enjoined,setaside,annulledorsuspended,withrespecttowhichanywaitingperiodprescribedbylawbeforethetransactionscontemplatedherebymaybeconsummatedhasexpired,andastowhichallconditionstotheconsummationofsuchtransactionsprescribedbylaw,regulationororderhavebeensatisfied.I-.(c)BasicAgreements:TherelevantpartiesshallhaveenteredintoeachotherBasicAgreement.(d)TaxRulings.FavorableprivateletterrulingsreasonablysatisfactorytoeachofthepartiesheretoshallhavebeenreceivedfromtheIRSwithrespecttotheapplicationofSection337(d)oftheCode.(e)ConsummationofExchangeTransaction.Either(i)thetransactionscontemplatedbytheExchangeAgreementshallhavebeenconsummated,(ii)theExchangeAgreementshall,havebeenterminatedor(iii)allconditionstosuchconsummationshallhavebeensatisfiedorwaivedinaccordancewiththetermsoftheExchangeAgreement:andsuchtransactionswillbeconsummatedpromptlyaftertheClosing.h(f)Einancing.AuthorityshallhaveobtainedfinancinginanamountsufficienttoacquiretheCommonStockandtheNon-Redeemable,PreferredStockandredeemtheRedeemablePreferredStockandthebondsissuedinconnectiontherewithshallhavereceivedratingspursuanttoratingapplicationswhichcontemplatetheissuanceofupto$7.3billionforsuchpurposeandforthepurposeofrefinancingCompanydebt.Section8.2CorttiitionstoObligationsofAuthorityandLIPASub.TheobligationsofAuthorityandPASubtoeffectthetransactionscontemplatedbythisAgreementandtheotherBasicAgreementsshallberthersubjecttothesatisfactiononorpriortotheClosingDate,ofthefollowingconditions,exceptasmaybewaivedbyAuthorityorLIPASubinwritingpursuanttoSection9.5:(a)PerformanceofObligationsofParentandCompany.EachofParentandCompanyshallhaveperformedinallmaterialrespectsitsagreementsandcovenantscontainedinorcontemplatedbythisAgreementandtheotherBasicAgreementsrequiredtobeperformedbyitatorpriortotheClosingDate.(b)RepresentationsandWarranties.TherepresentationsandwarrantiesofParentandCompanysetforthinthisAgreementandthe,otherbasicAgreementsshallbetrueandcorrect(i)onandasofthedatehereofand(ii)onandasoftheClosingDatewiththesameeffectasthoughsuchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonlyasofaspecificdateortimeotherthanthedatehereofortheClosingDatewhichneedonlybetrueandcorrectasofsuchdateortime)exceptineachofcases(i)and(ii)forsuchfailuresofrepresentationsorwarrantiestobetrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtherein)which,individuallyorintheaggregate,wouldnotbereasonablylikelytoresultinaMaterialAdverseEffect.,(c)ClosingCertificates.AuthorityshallhavereceivedacertificatesignedonbehalfofParentandCompanybytheChiefFinancialOfficerofParent,datedtheClosingDate,totheeffectthat,tothebestofsuchOfficer'sImowledge,theconditionssetforthinSection8.2(a)andSection8.2(b)havebeensatisfied.(d)MaterialAdversediect.NoMaterialAdverseEffectshallhaveoccurredandthereshallexistnofactor,circumstancewhichisreasonablylikelytohaveaMaterialAdverseEffect.IIt(e)ParentRequiredConsents.TheParentRequiredConsentsshallhavebeenobtained,exceptforthosensentsthefailureofwhichtoobtainwouldnothaveaMaterialAdverseEffect.D-23 (f)Fot7nationofParentSubsidiaries.TheTransfereeSubsidiarie'swillhavebeendulyformedanorganized.(g)TaxRulings.FavorableprivateletterrulingsreasonablysatisfactorytoAuthorityshallhavebeenreceivedfromtheIRSwithrespecttotheapplicationof.Sections103and115,oftheCode.(h)RateSavingsDetermination.Authorityshallhavemadethefinalratesavihgsdeterminationrequiredunderitsgoverningstatute.Section8.3ConditionstoObligationsofParentandCompany.TheobligationsofParentandCompanytoeffectthetransactionscontemplatedbythisAgreementandtheotherBasicAgreementsshallbefurthersubjecttothesatisfactiononorpriortotheClosingDateofthefollowingconditions,exceptasmaybewaivedbyParentandCompanyinwritingpursuanttoSection9.5:(a)PerfonnanceofObligatipnsofAuthorityandLIPASub.AuthorityandLIPASubshallhaveperformedinallmaterialrespectsitsagreementsandcovenantscontainedinorcontemplatedbythisAgreementandtheotherBasicAgreementsrequiredtobeperformedatorpriortotheClosingDate.(b)RepresentationsandWarranties.TherepresentationsandwarrantiesofeachofAuthorityandLIPASubsetforthinthisAgreementandtheotherBasicAgreementsshallbetrueandcorrect(i)onandasofthedatehereofand(ii)onandasoftheClosingDatewiththesameeffectasthoughsuchrepresentationsandwarrantieshadbeenmadeonandasoftheClosingDate(exceptforrepresentationsandwarrantiesthatexpresslyspeakonlyas'ofaspecificdateortimeotherthanthedatehereofortheClosingDatewhichneedonlybetrueandcorrectasofsuchdateortime)exceptineachofcases(i)anU'(ii)forsuchfailuresofrepresentationsorwarrantiestobetrueandcorrect(withoutregardtoanymaterialityqualificationscontainedtherein)which,individuallyorintheaggregate,wouldnotbereasonablylikelytoresultinaMaterialAdverseEffect.(c)ClosingCertificates.ParentshallhavereceivedacertificatesignedonbehalfofAuthoritybytheExecutiveDirectorofAuthority,datedtheClosingDate,totheeffectthat,,tothebest,ofsuchExecutivDirector'sknowledge,theconditionssetforthinSection8.3(a)andSection8.3(b)havebeensatisfied,(d)MaterialAdverseEgect.NoMaterialAdverseEffectshallhaveoccurredandthereshallexistnofact.orcircumstancewhichisreasonablylikelytohaveaMaterialAdverseEffect.IIARTICLEIXTERMINA,TIONANDAMENDMENTSection9.1Termination.ThisAgreementmaybeterminatedprior'otheClosingDate:(a)bymutualwrittenconsentoftheBoardofDirectorsofCompanyandtheBoardofTrusteesofAuthority;(b)byeitherParentandCompany,ontheonehand,orAuthorityandLIPASub,ontheotherhand,'iftheClosingshallnothaveoccurredonorbeforeAugust.31,1998(the"Initial,TerminationDate");provided,however,thattherighttotermin'atetheAgreementunderthisSection9.1(b)shallnotbeavailabletoanypartywhosefailuretofulfillanyobligationunderthisAgreementhasbeenthecauseof,orresultedin,thefailureoftheEffectiveTimetooccuronorbeforethisdate;andprovided,ftirther,thatifontheInitialTerminationDatetheconditionstotheClosingsetforthinSections8.1(b),8.1(d)or8.2(e)shall'nothavebeenfulfilledbutallotherconditionstotheClosingshallbefulfilledorshallbecapableofbeingfulfilled,thentheInitialTerminationDateshallbeextendedtoApril28,1999.(c)byParentorCompany,upontwodays'riornoticetoAuthority,if,asaresultofatenderofferoranywrittenofferorproposalwithrespecttoamerger,saleofamaterialportionofitsassetsorotherbusinesscombinationmadebyapartyotherthanAuthorityoranyofitsaffiliatespriortoCompanyhavingobtainCompanyShareholderApproval,theBoardofDirectorsof,CompanydeterminesingoodfaiththattheirfiduciD-24 bligationsunderapplicablelawrequirethatsuchtenderofferorotherwritten'offerorproposalbeaccepted;provided,Iiowever,that(i)theBoardofDirectorsofCompanyshallhavebeenadvisedina,writtenopinionofoutsidecounselthatnotwithstandingabindingcommitmenttoconsummateanagreementofthenatureofthisAgreemententeredintointheproperexerciseoftheirapplicablefiduciaryduties,andnotwithstandingallconcessionswhichmaybeofferedbyAuthorityinnegotiationsenteredintopursuanttoclause(ii)below,suchfiduciarydutieswouldalsorequirethedirectorstoreconsidersuchcommitmentasaresultofsuchtenderofferorotherwrittenofferorproposal;and(ii)priortoanysuchtermination,Companyshall,andshallcauseitsrespectivefinancialandlegaladvisorsto,negotiatewithAuthoritytomakesuchadjustmentsinthetermsandconditionsofthisAgreementaswouldenableCompanytoproceedwiththetransactionscontemplatedhereinonsuchadjustedterms;E(d)byAuthority,bywrittennoticetoParentandCompany,if(i)thereexistbreachesoftherepresentationsandwarrantiesofParentandCompanymadehereinasofthe,datehereofwhichbreaches,individuallyorintheaggregate,wouldorwould.bereasonablylikelytoresultinaMaterialAdverseEffect,andsuchbreachesshallnothavebeenremediedwithin20daysafterreceiptbyParentandCompanyofnoticeinwritingfromAuthority,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)ParentorCompanyshallhavefailedtoperformandcomplywith,inallmaterialrespects,itsagreementsandcovenantshereunderorunderanyotherBasicAgreementandsuchfailuretoperformor"complyshallnothavebeenremediedwithin20daysafterreceiptbyParentandCompanyofnoticeinwritingfrom'Authority,specifyingthenatureofsuchfailureandrequestingthatitberemedied;or(iii)theBoardofDirectorsofParentoranycommitteethereof(A)shallwithdrawor.modifyinanymanneradversetoAuthorityorLIPASubitsapprovalorrecommendationofthisAgreementortheotherBasicAgreements,(B)shallfailtoreaffirmsuchapprovalorrecommendationuponAuthority'sorLIPASub'srequest,or(C)shall,resolvetotakeanyoftheactionsspecifiedinclause(A)or(B);(e)byParentorCompany,bywrittennoticetoAuthorityandLIPASub,if(i)thereexistmaterialbreachesoftherepresentationsandwarrantiesofAuthorityandLIPA,Submadehereinasofthedatehereofwhichbreaches,ndividuallyorintheaggregate,wouldorwouldbereasonablylikelytoresultinaMaterialAdverseEffect,andchbreachesshallnothavebeenremediedwithin20daysafterreceiptbyAuthorityofnoticeinwritingfromarent,specifyingthenatureofsuchbreachesandrequestingthattheyberemedied,(ii)Authorityshallhavefailedtoperformandcomplywith,inallmaterialrespects,itsagreementsandcovenantshereunderorunderanyotherBasicAgreements,andsuchfailuretoperformorcomplyshallnothavebeenremediedwithin20daysafterreceiptbyAuthorityorLIPASubofnoticeinwritingfromParent,specifyingthenatureofsuchfailureandrequestingthatitberemedied,or(iii)theBoardofTrusteesofAuthorityoranycommitteethereof(A)shallwithdrawormodifyinanymanneradversetoParentorCompanyitsapprovalorrecommendationofthisAgreementoranyoftheotherBasicAgreements,(B)shallfailtoreaffirmsuchapprovalorrecommendationuponParent'sorCompany'srequest,or(C)shallresolvetotakeanyoftheactionsspecifiedinclause(A)or(B);or(f)byeitherParentandCompany,ontheonehand,orAuthorityandLIPASub,ontheotherhand,bywrittennoticetotheotherparty,ifanyoftheconditionsofeitherparty'sobligationtoeffectthetransactionscannotbesatisfied.Section9.2EgectofTermination.IntheeventoftheterminationofthisAgreement,theprovisionsinthisSection9.2,inSections7.7,7,9andArticleX(andSection11.7totheextentitisapplicabletosuchSectionsandArticle)shallsurvivetheterminationandnopartyshallberelievedofanyliabilityforanybreachofthisAgreement.Section9.3Survival.AllofthecovenantsintheSchedulesattachedheretoshallsurvivetheEffectiveTime.AllrepresentationsandwarrantiesinthisAgreementshallnotsurvivetheEffectiveTime,exceptasotherwiseprovidedinthisAgreement.Section9.4Amendment.ThisAgreementmaybeamendedatanytimebythepartieshereto,butonlybyaninstrumentinwritingsignedbyeachofthepartieshereto;provided,however,thatAuthorityandLIPASuballnotunreasonablywithholdtheirconsenttoanyamendmentproposedbyCompanywithrespecttoSections(b)and(c).D-25 Section9.5Extension,',lVaiver.AtanytimepriortotheClosing,thepartieshereto;may(a)extendthtimefortheperformanceofanyoftheobligations'orotheractsofthepartieshereto,(b)waiveanyinaccuraciesintherepresentationsandwarrantiescontainedhereinor'inanydocumentdeliveredpursuantheretoand(c)waivecompliancewithanyoftheagreements'or,totheextentpermittedbyapplicablelaw,conditionscontainedherein.Anyagreementonthepartofapartyheretotoanysuchextensionorwaivershallbevalidonlyifsetforthinawritteninstrumentsignedbysuchparty.Il,IIARTICLEX,,STANDSTILLSection10.1Standstill.In'theeventAuthority'terminatesthisA'greement,Authorityanditsaffiliateswillnot(andwillnotassistorencourageothersto),directlyorindirectly,'withouttheprior'consentofParentandCompany,priortothedatethatissixmonthsafterthe'dateoftermination,:ifriny,ofthisAgreementbyAutholitypursuanttoSec'tion9.1:I(a)acquireoragree,offer,seek'orproposetoacquire,orca'usetobea'cquired,ownffeiship(including,butnotlimited,,to,beneficialownershipasdefinedinRule13d-3undertheExchangeActofanyofCompany's(oranysuccessor's)assetsorbusinessesorany,securities>psuedbyCompany(oranysuccessor)orany,rightsoroptionstoacquiresuchownership,includingfromathirdparty;(b)condemnoragree',offer,seekorpiopose'tocondemn,'or'ausetobecondemned,anyofCompany's(oranysuccessor's)assetsorbusinessesorariysecuritiesissuedbyCompany'oranysuccessor);IIffI'(c)make,orinanywayparticipate,inanysolicitationofproxiesorconsentswithrespecttoanysecuritiesofParent'orCompanywhichare,ormaybe,entitledtovoteintheelectionofParent'sorCompariy's'directors,asthecasemaybe("VotingSecurities"),becomea"participant"inan)"electioncontest"(assuch'ermsaredefinedorusedinRule14a-11undertheExchangeAct)'withrespecttoParentorCompany;orse'ektoadvisencourageorinfiueffnceanypersonorentitywithrespecttothev'otingofanyofParent'sorCompany'srotiSecurities;ordemandacop'yofParent'sorCompany'sstockledger,list'ofParffent'sorCom'pany'sshareholdersorotherbooksandrecordsor'callorattemptto'callanymeeting''oftheshareholdersofParent"or'Company'or'ff(d)enter-intoanydiscussions,negotiations,arrangements.orunderstandingswithanythird'party.oragencywithrespecttoanyofthemattersdescribedinclause(a),(b)or(c)ofthisSection10.1.ffffFI.ARTICLEXIPrIISCELLANEOUSSectibn11.1CertainDelitiitions.iForallpurposesofthis'Agreement,except'asotherwise'expresslyprovidedorunlessthecontextotherwiserequires:(a)"affiliate".or"associate"of.anyspecifiedpersonmeansanyother.persondirectly'orindirectlycontrollingorcontrolledbyorunderdirector,,indirectcommon,controlwithsuchspecifiedperson.Forthepurposesofthisdefinition,,"control"whenusedwith"respecttoanyspecifiedpersonmeansthepowertodirectthemanagementandpoliciesofsuchperson,directlyorindirectly,whetherthroughtheownershipof;votingsecurities,bycontractorotherwise;andtheterms"controlling"and"controlled"havemeaningscorrelativetotheforegoing;FffF~(b)"businessday"meansanyday(otherthanaSaturdayoraSunday)onwhichbankinginstitutionsinNewYorkCity,NewYorkarenotauthorizedorobligatedbylaworexecutiveordertoclose;andIIffI.'c)"person"means'nyindividual,'corporation,-firms,companies,trusts,businesstrusts,legalentitiesgeneralpartnership,limitedpartnership,jointventure,association,joint-stockcompany,trust;limitedliabil~company,unincorporatedorganizationorgovernmentoranyagencyorpoliticalsubdivisionthereof.'
Section11.2Notices.Allnoticesandothercommunicationshereundershallbeinwritingandshallbedeemedgiven,uponreceiptifdeliveredpersonallyormailedbyregisteredorcertifiedmail(returnreceiptrequested)orovernightdeliveryservicetothepartiesatthefollowingaddresses(oratsuchother,addressforapaityasshallbespecifiedbylikenotice):PIPI~(a)iftoAuthorityorLIPASub,to:PVLongIslandPowerAuthorityP333EarleOvingtonBoulevardSuite403Uniondale,NewYork11553Telephone:(516)222-7700Attention:ExecutiveDirectorPwithacopyto:RichardKesselChairman'oftheBoard'ongIslandPowerAuthority333EarleOvingtonBlvd.,Suite403Uniondale,NewYork11553V.PIIePatrickFoyeDeputyChairmanoftheBoardLongIslandPowerAuthority333EarleOvingtonBlvd.,Suite403Uniondale,NewYork11553winthrop,Stimson,-Putnam&RobertsOneBatteryPark,PlazaNewYork,NewYork10004Telephone:(212)858-1000Attention:StephenR.RusmiselV(b)-iftoParentorCompany,to:LongIslandLightingCompany175EastOldCountyRoadHicksville,NewYork11801Telephone:(516)545-4800Attention:ChiefExecutiveOfficerwithacopytoVKramer,Levin,Naftalis&Frankel919ThirdAvenue'ewYork,NewYork10022IITelephone:(212)715-9100Attention:ThomasE.ConstanceISection11.3DescriptiveHeadings.ThedescriptiveheadingshereinareinsertedforconvenienceonlyandarenotintendedtobepartofortoaffectthemeaningorinterpretationofthisAgreement."IIVVSection.11.4Counterparts.ThisAgreementmaybeexecutedintwoormorecounterparts,allofwhichallbeconsideredoneandthesameagreement.ID-27
'Section11.5EntireAgreement;Assigntnent.ThisAgreement,includingtheannexesandexhibitsheretandthedocuments,schedules(including,without,limitafion,theDisclosureSchedule),certificatesandinstrumentsreferredtohereinconstitutetheentireagreement,.andsupersede.allprioragreementsandunderstandings,bothwrittenandoral,amongthepartieswithrespecttothesubjectmatterhereof.ThisAgreementshallnotbeassignedbyoperationoflaworotherwise.Section11.6GoverningLaiv.This'greementshallbegovernedandconstruedinaccordancewiththelawsoftheStateofNewYork,withoutregardtoanyapplicableprinciplesofconfiictsoflaw.ExceptasotherwiseprovidedinSection11.10,anyactionarisingoutoforrelatingtothisAgreementshallbebroughtinNewYorkStateCourtorFederalDistrictCourt.Section11.7SpecificPerfonnance.Thepartiesheretoagreethatifanyof,theprovisionsofthisAgreementwerenotperformedinaccordancewiththeirspecifictermsorwereotherwisebreached,irreparabledamagewouldoccur,noadequateremedyatlawwouldexistanddamageswouldbedifficulttodetermine,andthatthepartiesshallbeentitledtospecificperformanceofthetermshereof,inadditiontoanyotherremedyatlaworequity.Section11.8PartiesinInterest.ThisAgreementshallbebindinguponandinuresolelytothebenefitofeachpartyhereto,andnothinginthisAgreement,expressorimplied,isintendedtoorshallconferuponanyotherpersonorpersonsanyrights,benefitsorremediesofanynaturewhatsoeverunderorbyreasonofthisAgreement.Section11.9Severability.ThisAgreementshallbedeemedseverable;theinvalidityorunenforceabilityofanytermorprovisionofthisAgreementshallnotaffectthevalidityorenforceabilityofthisAgreementorofanyothertermhereof,whichshallremaininfullforceandeffect.Section11.10,AlternativeDisputeResolution.I(a)AnydisputearisingoutoforrelatingtoanycovenantcontainedinanyScheduletothisAgreementshallberesolvedinaccordancewiththeproceduresspecifiedinthisSection11.10,whichshallconstitutethesoleaexclusiveproceduresfortheresolutionofsuchdisputes,excepttotheextentanysuchSchedule'xpressprovidesanotherdisputeresolutionprocess.(b)ThepartiesagreetousetheirbesteffortstosettlepromptlyanydisputesorclaimsarisingoutoforrelatingtothisAgreementthroughnegotiationconductedingoodfaithbetweenexecutiveshavingauthoritytoreachsuchasettlement.Ifeitherpartyheretoshallsorequest,thepartiesshallmutuallyagreeorat.theselectionofamediatorwhoshallmediatethenegotiations,whichshallbenon-binding.AllnegotiationsandmediationdiscussionspursuanttothisparagraphareconfidentialandshallbetreatedascompromiseandsettlementnegotiationsforpurposesofFederalRuleofEvidence408andapplicablestaterulesofevidence.(c)AnydisputearisingoutofrelatingtoanyScheduletothisAgreementorthebreach,termination,orvaliditythereof,whichdisputehasnotbeenresolvedbyanegotiationormediationasprovidedinparagraph(b)hereofwithin60daysfromthedatethateithernegotiationsormediationshallhavebeenfirstrequested,shallbesettledbybindingarbitrationbeforethreeindependentandimpartialarbitratorsinaccordancewiththethencurrentrulesoftheAmericanArbitrationAssociation,excepttotheextentsuchrulesare=inconsistentwithanyprovisionofthisAgreement,inwhichcasetheprovisionsofthisAgreementshallbefollowed,andexceptthatthearbitrationsunderthisAgreementshallnotbeadministeredbytheAmericanArbitrationAssociation.TheArbitratorsshallbe(i)independentofthepartiesanddisinterestedintheoutcomeofthedispute,(ii)attorneys,accountants,investmentbankers,commercialbankersorengineersfamiliarwithcontractsgoverningtheoperationofelectricutilityassets;and(iii).qualifiedinthesubjectarea.oftheissueindispute.Forpurposesoftheprecedingsentence,residents'ofLongIslandshallnotbeconsideredinterestedmerelybyvirtueoftheirresidence.TheArbitratorsshallbechosenbytheparties,witheachpartychoosingonearbitratorandthosearbitratorschoosingthethird'arbitrator.JudgmentontheawardrenderedbytheArbitratorsmaybeenteredanycourtintheStateofNewYorkhavingjurisdictionthereof.IfeitherpartyrefusestoparticipateingoodfaD-28 thenegotiationsormediationproceedingsdescribedinparagraph(b)hereof,theotherinayinitiatearbitrationatanytimeaftersuchrefusalwithoutwaitingfortheexpirationofthe60dayperiod.Except,asprovidedinParagraph(d)hereofrelatingtoprovisionalremedies,theArbitratorsshalldecideallaspectsofanydisputebroughttothe'mincludingattorneydisqualificationandthetimelinessofthemakingofanyclaim.(d)Eitherpartymay,withoutprejudicetoanynegotiation,mediation,orarbitrationprocedures,proceedinanycourtofcompetentjurisdiction'toseek-provisionaljudicialreliefif,insuchparty'ssolediscretion,suchactionisnecessarytoavoidimminentirreparableharmortopreservethestatusquopendingtheconclusionofthedisputeproceduresspecifiedinthisSection11.10.,'k4(e)TheArbitratorsshallhavenoauthoritytoawardpunitivedamagesoranyotherdamagesasidefromtheprevailingparty'sactualandconsequentialdamages,'plusinterestthereonattheBaseInterestRate(asdefinedintheManagementServicesAgreement)acciiiedfromthedatesuchdamageswereincurred.TheArbitratorsshallnothavetheauthoritytomakeanyruling,finding,orawardthatdoesnotconformtothetermsandconditionsofthisAgreement.(f)TheArbitratorsmayawardreasonableattorneys'eesandcostsofthearbitration.(g)AnyclaimunderanyScheduletothisAgreementshallbetime-barred,regardlessofanystatuteoflimitationsperiodsprovidedby'st'ateor'federallaw,unlessnegotiationormediationwithrespecttheretoiscommencedwithrespecttosuchclaimwithintwelvemonthsafterthebasisforsuchclaimhasbeendiscovered.(h)TheArbitratorsshallhavethediscretionloorderapre-hearingexchangeofinformationbytheparties,including,withoutlimitation,theproductionofrequesteddocuments,theexchangeofsummariesoftestimonyofproposedwitnesses,andtheexaminationbydepositionofparties.Eachofthepartiesagreestoproduceallsuchrequesteddocumentsandtodeliverto'heother''acer'tificate,executedbyaseniorexecutiveoFsuchparty,statingthatallsuchdocumentshavebeensoproduced.h(i)ThesiteofanyarbitrationproceedingbroughtpursuanttothisAgreementshallbeMineolaorauppauge,NewYork.(j)TheArbitrators'wardshallbeinwritingandshallsetforththefactualandlegalbasesfortheaward.D-29
=,IN:WITNESSWHEREOF,;thepartiesheretohavecausedthisAgreementtobesignedbytheirrespectivofficersthereuntodulyauthorizedasofthedatefirst,writtenabove.''\LONGISLAND,LIGHTINGCOMPANY..~c5NBy:,,.Name',Dr,WilliamJ.Catacosinos.-,,.Title:,ChiefExecutiveOfficerty,yILONGISLANDPOWERAUTHORITYr,e<''Iii'By;..'>>>r~*.,Name:jRichardM.KesselTitle:ChairmantMdAscontemplatedbySection1.4hereof,Parent:By:Name:PatrickFoyeTitle:DeputyChairmanLIPAACQUISITION,CORP.By:Name:JI.Title:theundersigned,hasexecutedanddeliveredthisAgreementastI.BLHOLDINGCORP.By:Name:Title:D-30 MerrillLynchWttIW~WlANNEXEWfInvestmentBankingCorporateandInstitutional>".ClientGroup'orld'Finan'cial'Center,-,,NorthTowerNewYork,NewYork.10281-1327,212449$000June27,1997BoardofDirectorsTheBrooklynUnionGasCompanyOne'MetroTechCenterBrooklyn,NewYork11201-3850W~Itiix'3'LadiesandGentlemen:TheBrooklynUnionGasCompany(the"Company""or"BrooklynUnion")andLong'IslandLightingCompany("Lilco")haveenteredintoanAmendedandRestatedAgreementandPlan:ofExchange'andMergerdatedasofJune26,1997(the"Agreement")pursuanttowhich,amongotherthings,(i)awholly-ownedsubsidiary'ofaholdingcompanyto'be'forinedpursuanttotheAgreement("Newco")willbemergedwithandnto'heCompany(the"BrooklynUnion'erger"),'isaresultofwhicheachissuedandoutstandingshareofheCompany'scommonstock,parvalue$0.33Npershare(the"CompanyShares"),otherthanDissentingShares(asdefinedintheAgreement),willbeconvertedintotherighttoreceiveonenewlyissuedshare(the"ExchangeRatio")ofthecommo'ns'tockof'Newco,parvalue$;01pershare(the"NewcoShares"),and(ii)eachissuedandoutstandingshareofLilco'scommonstock,parvalue'$5.00'pershare'("LilcoShares"),otlierthanDissentingShares,willbeexchanged(the"LilcoBindingShareExchange",andtogetherwiththeBrooklynUnionMerger,the'CombinationTransactions")for0.803newlyissuedNewcoSharessubjecttoadjustment'to0.880newlyissuedNewcosharesiftheLIPATransactionreferredtobelow'sconsummate'd.Thetermsandconditions'oftheCombination1'ransactionsaremorefully'setforthinthe'greement.wtWYouhaveaskeduswhether,,inouropinion,theExchangeRatioisfairtotheholdersoftheCompanySharesfromafinancialpointof,view.SWI~tlIttInarrivingattheopinion>setforthbelow,wehave,amongotherthings:IVt"(1)ReviewedtheCompany'sAnnualReports,Forms10-Kandrelatedfinancialinformationforthethree'fiscalyearsendedSeptember30,1996andtheCompany'sForms10-Qandtherelatedunauditedwfinancialinformationforthequarterly.periodsendingDecember31,1996andMarch31,1997',~(2)ReviewedLilco's"AnnualReports,Forms''10-KandrelatedfinancialinformationforthethreefiscalyearsendedDecember31,'1996andLilco's.Form'10-Qandtherelatedunauditedfinancial'informationfor'thequarterlyperiodendingMarch31,W1997;*,'.lIWI'3)Reviewedcertaininformation",includingfinancialforecasts,relatingtothebusiness,earnings>cashflow;assets'andprospectsofth'eCompany.andLilco,furnishedtousby,theCompanyandLilco;'
2Merri11Lynch,h(4)ConducteddiscussionswithmembersofseniormanagementoftheCompanyandLilcoconcerningtheirrespectivebusinesses,regulatoryenvironments,prospectsandstrategicobjectives;(5)ReviewedthehistoricalmarketpricesandtradingactivityfortheCompanySharesandLilcoSharesandcomparedthemwiththatofcertainpubliclytradedcompanieswhichwedeemedtobereasonablysimilartotheCo'mpanyandLilco,respectively;(6)ComparedtheresultsofoperationsoftheCompanyandLilcowiththatofcertaincompanieswhichwedeemedtobereasonablysimilartotheCompanyandLilco,respectively;(7)ComparedtheproposedfinancialtermsofthetransactionscontemplatedbytheAgreementwiththefinancialtermsofcertainothermergersandacquisitionswhichwedeemedtoberelevant;(8)ConsideredthepotentialproformaimpactoftheCombinationTransactions,includingontheCompany'scapitalizationratiosandearnings,dividendsandbookvaluepershare;(9)ReviewedtheAgreement;(10)ReviewedtheAgreementandPlanofMerger,datedasofJune26,1997,byandamongBLHoldingCorp.,Lilco,LongIslandPowerAuthority("LIPA")andLIPAAcquisitionCorp.(the"LIPAAgreement")providingforthe,acquisition'byLIPAofcertainspecifiedassetsandpropertiesofLilco(the"LIPATransaction");and,(11)Reviewedsuchotherfinancialstudiesandanalysesandperformedsuchotherinvestigationsandtookintoaccountsuchothermattersaswedeemednecessary,includingourassessmentofgeneraeconomic,marketandmonetaryconditions.Inpreparingouropinion,wehaveassumed,withyourconsent,thattheLIPATransaction,ifconsummated,willbeconsummatedonthetermscontainedintheLIPA'greement.Inpreparingouropinion,wehavealsoassumedandreliedontheaccuracyandcompletenessofallinformationsuppliedorotherwisemadeavailabfetousorpubliclyavailableordiscussedwithorreviewedbyorforusandwehavenotassumedanyresponsibilityforindepe'ndentlyverifyingsuchinformationorundertakenanindependentevaluationorappraisalofanyoftheassetsor'liabilitiesoftheComp'anyorLilco.Inaddition,wehavenotconductedanyphysicalinspectionofthepropertiesorfacilitiesoftheCompanyorLilco.WithrespecttothefinancialForecastsfurnishedtoordiscussedwithusbytheCompanyandLilco,wehaveassumedthattheyhavebeenreasonablypreparedandreflectthebestcurrentlyavailableestimatesandjudgmentof"theCompany'sorLilco'smanagementastotheexpectedfuturefinancialperformanceoftheCompanyorLilco,asthecasemaybe,andastotheexpectedfutureprojectedoutcomesofvariouslegal,regulatoryandothercontingencies.Inthatregard,Lilco'sfinancialforecastsforthecaseinwhichLilcoretainsownershipofitselectrictransmissionanddistributionsystem,substantiallyallofitselectricregulatoryassetsandcertainotherinterestsandtheLIPATransactionisnotconsummated;assume,amongotherthings,(i)thatLilcowillbesubjecttonoreductioninelectricratesforthefive-yearperiodendingDecember31,2002,(ii)thatLilcowillfullyrecoverinitscurrentandfutureelectricratesallofitscostsreferredtointheNotestoFinancialStatementsofLilcofortheyearendedDecember31,1996,associatedwiththetransferoftheShorehamNuclearPowerStationtoLIPAanddecommissioningthereof,ontermsnolessfavorable-toLilcothanthetermscurrentlyineffect,and(iii)thattherewillbenoadversechangestoLilcoingeneralcompetitiveconditionsforthetransmissionandsaleofelectricityintheareasservicedbyLilcothroughtheconstructionofnewtransmissionlinestoLongIslandorotherwise.WehaveassumedthattheCombinationTransactionswillbeaccountedforasapoolingofinterest.inthecasewheretheLIPATransactionisnotconsummatedandthattheBrooklynUnionMergerwillqualifyatax-freereorganizationforU.S.federalincometaxpurposes.
Ouropinionisnecessarilybaseduponmarket,economicandotherconditionsastheyexistandcanbeevaluatedasofthedatehereof.WehaveassumedthatinthecourseofobtainingthenecessaryregulatoryorotherconsentsorapprovalsfortheCombinationTransactionsandtheLIPATransaction,norestrictions,includinganydivestiturerequirementsoramendmentsormodifications,willbeimposedthatwillhaveamaterialadverseeffectonthecontemplatedbenefitsoftheCombinationTransactionsortheLIPATransaction.Inconnectionwiththepreparationofthisopinion,wehavenotbeenauthorizedbytheCompanyortheBoardofDirectorstosolicit,norhavewesolicited,third-partyindicationsofinterestfortheacquisitionofalloranypartoftheCompany.WeexpressnoopinionastowhatthevalueoftheNewcoSharesactuallywillbewhenissuedtotheholdersoftheCompanySharesuponconsummationoftheCombinationTransactionsorwhatthevalueoftheCompanySharesorLilcoShareswillbebetweenthedatehereofandtheconsummationoftheCombinationTransactions.ThisopinionisaddressedtotheBoardofDirectorsoftheCompanyanddoesnotconstitutearecommendationtoanyshareholdersastohowsuchshareholdersshouldvoteontheproposedCombinationTransactions.WehaveactedasfinancialadvisortotheCompanyinconnectionwiththeCombinationTransactionsandwillreceiveafeeforourservices,asignificantportionofwhichiscontingentuponconsummationoftheCombinationTransactions.We.have,inthepast,providedfinancial,advisoryandfinancingservicestotheCompanyandfinancingservicestoLilcoandhavereceivedfeesfortherenderingofsuchservices.Intheordinarycourseofourbusiness,wemayactivelytradethesecuritiesoftheCompanyorLilcoforourownaccountandfortheaccountsofcustomersand,accordingly,mayatanytimeholdalongorshortpositioninuchsecurities.Onthebasisof,andsubjecttotheforegoingandothermatterswhichwedeemrelevant,weareoftheopinionthat,asofthedatehereof,theExchangeRatioofoneNewcoShareforeachCompanyShareisfairtotheholdersoftheCompanySharesfromafinancialpointofviewiftheLIPATransactionisconsummated,underwhichcircumstanceseachLilcoSharewillbeexchangedfor0.880NewcoShares,andiftheLIPATransactionisnotconsummated,underwhichcircumstanceseachLilcoSharewillbeexchangedfor0.803NewcoShares.Verytrulyyours,MERRILLLYNCH,PIERCE,FENNER&SMITHINCORPORATED
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TheBoardofDirectorsLongIslandLightingCompany~175EastOldCountryRoadHicksville,NY11801GentlemenandLadies:ANNEXFDecember29,1996Youhaverequestedouropinionastothefairness,fromafinancialpointofview,totheholders(the"Stockholders")ofcommonstock,parvalue$5.00pershare("CompanyCommonStock"),ofLongIslandLightingCompany(the"Company")oftheConversionRatiosetforthintheBindingShareExchangeAgreement,datedasofDecember29,1996(the"Agreement"),byandamongBrooklynUnionGasCompany("BrooklynUnion"),LongIslandLightingCompany,andNYECO,anewlycreatedcorporation("NYECO"),pursuanttowhichBrooklynUnionandLongIslandLightingCompanyshallcombineandbecomewhollyownedsubsidiariesofNYECO(the"Transaction").IntheeventtheTransactionisconsummated,eachissuedandoutstandingshareofCompanyCommon~~Stock,otherthansharesofCompanyCommonStocktobecanceledpursuanttheAgreement,shallbeconverted'ntotherighttoreceive.803(the"ConversionRatio")sharesofNYECOcommonstock,$.01parvalue,andeachshareofBrooklynUnioncommonstock,otherthansharesofBrooklynUnioncommonstocktobecanceledpursuanttotheAgreement,shallbeconvertedintotherighttoreceiveoneshareofNYECOcommonstock.Inamvingatouropinion,wehave,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtotheCompanyandBrooklynUnion,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtousbytheCompanyandBrooklynUnionrelatingtothebusinessandprospectsoftheCompanyandBrooklynUnion,(iii)conducteddiscussionswithmembersoftheseniormanagementoftheCompanywithrespecttothebusinessandprospectsoftheCompany,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinesswebelievetobegenerallycomparabletothoseoftheCompanyandBrooklynUnion,(v)reviewedthehistoricalmarketpricesandtradingvolumesoftheCompanyCommonStockandthecommonstockofBrooklynUnion,(vi)comparedtheproposedfinancialtermsoftheTransactionwiththefinancialtermsofcertainothermergerswhichwebelievetobegenerallycomparabletotheTransaction,(vii)analyzedtherespectivecontributionsintermsofrevenue,earnings,cashflowandcommonequityoftheCompanyandBrooklynUniontothecombinedcompany,andtherelativeownershipofNYECOaftertheTransactionbythecurrentholdersoftheCompanyCommonStockandBrooklynUnioncommonstock,(viii)consideredtheproformaeffectoftheTransactionontheCompany'scapitalizationratios,earnings,cashflowandbookvaluepershare,(ix)reviewedtheAgreement,and(x)conductedsuchotherfinancialstudies,analysesandinvestigations,andconsideredsuchotherinformation,aswedeemednecessaryorappropriate.Inconnectionwithourreview,wehavenotindependentlyverifiedanyoftheforegoinginformationandhave,withyourconsent,reliedonitsbeingcompleteandaccurateinallmaterialrespects.Inaddition,wehavenotmadeanyindependentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)ofttheCompanyorBrooklynUnionoranyoftheirrespectivesubsidiaries,norhavewebeenfurnishedwithanyuchevaluationorappraisal.Withrespecttothefinancialforecastsreferredtoabove,wehave,atyourdirection,assumedthattheyhavebeenreasonablypreparedonbasesreflectingthebestcurrentlyavailableestimatesand judgmentsoftheCompany'sandBrooklynUnion'smanagementastothefuturefinancialperformanceofeachcompany.OurreviewofBrooklynUnion'scurrentandanticipatedfutureoperations,financialconditionandprospectswas,withpourconsent,basedentirelyonpublicinformation(except,forcertain1imitedinternalprojectionsreferredtoabove),andwasthereforelimitedinscope.WehavenothelddiscussionswithanymembersofBrooklynUnion'sseniormanagement.Withyourconsent,wehaveassumedthattheTransactionwillbetreatedastax-freetoboththeCompanyandtheStockholdersandwillbeaccountedforasapoolingofinterests.Further,ouropinionisbasedoneconomic,monetaryandmarketconditionsexistingonthedatehereof.Dillon,Read&Co.Inc.hasactedasfinancialadvisortotheBoardofDirectorsoftheCompanyinconnectionwiththeTransaction,forwhichwewillreceiveafee.Intheordinarycourseofbusiness,wehavetradedthedebtandequitysecuritiesoftheCompanyandBrooklynUnionforourownaccountandfortheaccountsofourcustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.Inrenderingthisopinion,weexpressnoviewastotherangeofvaluesatwhichNYECOcommonstockmaytradefollowingconsummationoftheTransaction,andwearenotmakinganyrecommendationtotheStockholderswithrespecttotheadvisabilityofdisposingoforretainingsuchNYECOcommonstockfollowingtheTransaction.Baseduponandsubjecttotheforegoing,weareoftheopinion,asofthedatehereof,thattheConversionRatioisfair,fromafinancialpointofview,totheStockholders.Verytrulyyours,DILLON,READ&CO.INC.
TheBoardofDirectorsLongIslandLightingCompany175EastOldCountryRoadHicksville,NY11801GentlemenandLadies:June26,1997Youhaverequestedouropinionastothefairness,fromafinancialpointofview,totheLongIslandLightingCompany(the"Company")oftheConsiderationtobereceivedpursuanttotheAgreementandPlanofMerger,datedasofJune26,1997(the"LIPAAgreement"),byandamongBLHoldingCorp.("Parent"),theCompany,theLongIslandPowerAuthority("LIPA"),andLIPAAcquisitionCorp.("LIPASub.")pursuanttowhichLIPASub.willmergewithandintotheCompany(the"LIPATransaction").PriortotheLIPATransaction,theCompanywillcompleteareorganizationpursuanttowhichitsnaturalgasandelectricgenerationbusinesses,andcertainotherassets,willbedistributedtoanewlycreatedsubsidiaryorsubsidiariesofParent.PursuanttotheLIPATransaction,LIPAwillpaytoParent$2,497,500,000incash(the"Consideration")forthestockoftheCompany,whichwillowntheCompany'selectrictransmissionanddistributionbusiness("T&DBusiness")andcertainotherassetsoftheCompany,includingregulatoryassetsofapproximately$6.6billion(the"RegulatoryAssets")andtheCompany's18%interestintheNineMilePointTwonuclearplant("NuclearAssets").TheCompanywillalsohaveapproximately$3.9billionofdebtandpreferredstockoutstandingandbookvalueofapproximately$2.5billionatthetimeofitsmergerwithLIPAub.PursuanttotheLIPATransaction,LIPAandParent(orsubsidiariesthereof)willenterintoancillaryagreementspursuanttowhichParent(orsubsidiariesthereof)willprovideelectricitytoLIPAandcontinuetomanageessentiallyallaspectsoftheT&DBusiness("BasicAgreements").Inarrivingatouropinion,wehave,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtotheCompany,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtousbytheCompany,includinghistoricalandprojectedfinancialinformationfortheT&DBusiness,theNuclearAssetsandtheRegulatoryAssets,(iii)conducteddiscussionswithmembersoftheseniormanagementoftheCompanywithrespecttothebusinessandprospectsoftheCompany,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinesswebelievetobegenerallycomparabletotheT&DBusiness,(v)comparedpubliclyavailablefinancialandstockmarketdataforcertainutilitieswithrelativelyhighconcentrationsofnucleargenerationtocertainutilitieswithlittleornonucleargeneration,(vi)reviewedthefinancialtermsofcertaintransactionsinvolvingtransmissionanddistributionassets,(vii)consideredtheproformaeffectoftheLIPATransactionontheParent'sfinancialcondition,(viii)reviewedtheLIPAAgreement,(ix)consideredthefinancialtermsoftheBasicAgreements,(x)consideredtheeffectoftheLIPATransactionontheCompany'spendingshareexchangeagreementwithTheBrooklynUnionGasCompany,and(xi)conductedsuchotherfinancialstudies,analysesandinvestigations,andconsideredsuchotherinformation,aswedeemednecessaryorappropriate.Inconnectionwithourreview,wehavenotindependentlyverifiedanyoftheforegoinginformationandhave,withyourconsent,reliedonitsbeingcompleteandaccurateinallmaterialrespects.Inaddition,wehavenotmadeanyindependentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)oftheCompanyoranyofitssubsidiaries,norhavewebeenfurnishedwithanysuchevaluationorappraisal.Withrespecttothefinancialforecastsreferredtoabove,wehave,atyourdirection,assumedthattheyhavebeenasonablypreparedonbasesrefiectingthebestcurrentlyavailableestimatesandjudgmentsofmanagementasthefuturefinancialperformanceoftheCompany,theT&DBusiness,theNuclearAssets,andtheRegulatoryAssets.Wehavealso,atyourdirection,reliedonyouradviceregardingthetaxconsequencesoftheLIPA Transaction.WehavenotattemptedtoquantifytheregulatoryriskinherentintheRegulatory.Assets,whichwillcompriseamajorityoftheassetstheCompanywillownatthetimeoftheLIPA,Transaction.Further,ouropinionisbasedoneconomic,monetaryandmarketconditionsexistingonthedatehereof.hDillon,Read&Co.Inc.hasactedasfinancialadvisortotheBoardofDirectorsoftheCompanyinconnectionwiththeLIPATransaction,forwhichwewillreceiveafee.Intheordinarycourseofbusiness,wehavetradedthedebtandequitysecuritiesoftheCompanyforourownaccountandfortheaccountsofourcustomersand,accordingly,mayatanytimeholdalongorshortpositioninsuchsecurities.IInrenderingthisopinion,weexpressnoviewastotherangeofvaluesatwhichtheParentcommonstockmaytradefollowingconsummationoftheLIPATransaction,andwearenotmakinganyrecommendationtothestockholdersoftheCompanywithrespecttotheadvisabilityofdisposingoforretaining.suchParentcommonstockfollowingtheLIPATransaction.'aseduponandsubjecttotheforegoing,weareoftheopinion,asofthedatehereof,thatthe'Considerationisfair,fromafinancial.pointofview,totheCompany.4'erytrulyyours,DILLON,READ&CO.INC.0,IhA'II1lkI"'AlA,k0 TheBoardtifDirectors'LongIslandLightingCompany"175EastOldCountryRoadHicksville,NY11801June26,1997GentlemenandLadies:Youhaverequestedouropinionastothefairness,fromafinancialpointofview,totheholders(the"Stockholders")ofcommonstock,'parvalue$5.00pershare("CompanyCommonStock"),ofLongIslandLightingCompany(the"Company")oftheconversionRatiossetforthintheAmendedandRestatedAgreementandPlanofExchange"andMerger,'datedasofJune26,1997(the"Agreement"),byandamongBrooklynUnionGasCompany("BrooklynUnion")andLongIslandLightingCompany,pursuanttowhichBrooklynUnionandLongIslandLightingCompanyshallcombineandbecomewhollyownedsubsidiariesofBLHoldingCorp.,anewlycreatedholdingcompany(the"Transaction").IntheeventtheTransactionisconsummated,eachissuedandoutstandingshareofCompanyCommonStock,otherthansharesofCompanyCommonStocktobecanceledpursuanttheAgreement,shallbeconvertedintotherighttoreceive.803(the"OriginalRatio")shares,oriftheLIPATransactionisconsummated,.88(the"LIPARatio")shares,ofBLHoldingCorp.commonstock,$.01parvalue,andeachshareofBrooklynUnioncommonstock,otherthansharesofBrooklynUnioncommonstocktobecanceledpursuanttotheAgreement,tshallbeconvertedintotherighttoreceiveoneshareofBLHoldingCorp.commonstock.Inarrivingatouropinion,wehave,amongotherthings:(i)reviewedcertainbusinessandhistoricalfinancialinformationrelatingtotheCompanyandBrooklynUnion,(ii)reviewedcertainfinancialforecastsandotherdataprovidedtousbytheCompanyandBrooklynUnionrelatingtothebusinessandprospectsoftheCompanyandBrooklynUnion,(iii)conducteddiscussionswithmembersoftheseniormanagementsoftheCompanyandBrooklynUnionwithrespecttothebusinessandprospectsoftheCompanyandBrooklynUnion,(iv)reviewedpubliclyavailablefinancialandstockmarketdatawithrespecttocertainothercompaniesinlinesofbusinesswebelievetobegenerallycomparabletothoseoftheCompanyandBrooklynUnion,(v)reviewedthehistoricalmarketpricesandtradingvolumesoftheCompanyCommonStockand'thecommonstockofBrooklynUnion,(vi)comparedtheproposedfinancialtermsoftheTransactionwiththefinancialtermsofcertainothermergerswhichwebelievetobegenerallycomparabletotheTransaction,(vii)analyzedtherespectivecontributionsintermsofrevenue,earnings,cashfiowandcommonequityoftheCompanyandBrooklynUniontothecombinedcompany,andtherelativeownershipofBLHoldingCorp.aftertheTransactionbythecurrentholdersoftheCompanyCommonStockandBrooklynUnioncommonstock,(viii)consideredtheproformaeffectoftheTransactionontheCompany'scapitalizationratios,earnings,cashfiowandbookvaluepershare,(ix)reviewedtheAgreement,and(x)conductedsuchotherfinancialstudies,analysesandinvestigations,andconsideredsuchotherinformation,aswedeemednecessaryorappropriate.Inconnectionwithourreview,wehavenotindependentlyverifiedanyoftheforegoinginformationandhave,withyourconsent,reliedonitsbeingcompleteandaccurateinallmaterialrespects.Inaddition,wehavenotmadeanyindependentevaluationorappraisalofanyoftheassetsorliabilities(contingentorotherwise)oftheCompanyorBrooklynUnionoranyoftheirrespectivesubsidiaries,norhavewebeenfurnishedwithanysuchevaluationorappraisal.Withrespecttothefinancialforecastsreferredtoabove,wehave,atyourdirection,assumedthattheyhavebeenreasonablypreparedonbasesrefiectingthebestcurrentlyavailableestimatesandudgmentsoftheCompany'sandBrooklynUnion'smanagementastothefuturefinancialperformanceofeachompany.Withyourconsent,wehavereliedonyouradviceregardingthetaxconsequencesoftheTransaction.Further,ouropinionisbasedoneconomic,monetaryandmarketconditionsexistingonthedatehereof.
Dillon,Read&Co.Inc.hasactedasfinancialadvisortotheBoardofDirectorsoftheCompanyinconnectionwiththe.Transaction,forwhichwewillreceiveafee.Intheordinarycourseofbusiness,wehavetradedthedebtandequitysecuritiesoftheCompanyandBrooklynUnion.forour4ownaccountandfortheaccountsofourcustomersand,accordingly,may'tanytimeholdalongorshortpositioninsuchsecurities.Inrenderingthisopinion,weexpressnoviewastotherangeofvaluesatwhichBLHoldingCorp.commonstockmaytradefollowingconsummationoftheTransaction,andwearenotmakinganyrecommendationtotheStockholderswithrespecttotheadvisabilityofdisposingoforretainingsuchBLHoldingCorp.commonstockfollowingtheTransaction.Baseduponandsubjecttotheforegoing,weareoftheopinion,asofthedatehereof,thattheOriginalRatioandtheLIPARatioarefair,fromafinancialpointofview,totheStockholders.I.Verytrulyyours,,DILLON,READ&'CO.INC.~\t4K,t',<PK4It0IIII~II144K4 ANNEXGFORMOFCERTIFICATEOFINCORPORATIONOFTHEHOLDINGCOMPANYUNDERSECTION402OFTHEBUSINESSCORPORATIONLAWOFTHESTATEOFNEWYORKARTICLEINAMEThenameofthecorporation(the"Corporation")is"ARTICLEII,PURPOSEThepurposesforwhichtheCorporationisformedaretoengageinanylawfulactoractivityforwhichcorporationsmaybeorgariizedundertheNYBC1.,buttheCorporationisnotformedtoengageinanyactoractivityrequiringtheconsentorapprovalofanystateofficial,department,board,agencyorotherbodywithoutsuchconsentorapprovalfirstbeingobtained.eARTICLE<IIIOFFICE<TheofficeoftheCorporationistobelocatedintheCountyof,StateofNewYork.ARTICLEIVCAPITALSTOCKSection1.TheaggregatenumberofshareswhichtheCorporationshallhaveauthoritytoissueshallbe450,000,000sharesofCommonStock,parvalue$.01persharc,and100,000,000sharesof.PreferredStock,parvalue$.01pershare.Section2.TheamountofcapitalstockoftheCorporationshallbe$7,000,000.Section3.SharesofPreferredStockmaybeissuedfromtimetotimeinoneormoreseriesasmaybedeterminedfromtimetotimebytheBoardofDirectors.Exceptinrcspe'ctoftheparticularstobefixedbytheBoardofDirectorsasprovidedbelow,allsharesofPreferredStockshallbeofequalrank.AllsharesinanyoneseriesofPreferredStockshallbealikeineveryparticularexceptthatsharesofanyoneseriesissuedatdifferenttimesmaydifferastothe.datesfromwhichdividendsthereonshallbecumulative.Thevotingrights,ifany,ofeachsuchseriesandthepreferencesandrelative,participating,optionalandotherspecialrightsoleachseriesandthequalifications,limitationsandrestrictionsthereof,ifany,maydifferfromthoseofanyandallotherseries.TheBoardofDirectorsshallhavetheauthoritytofix.byresolutiondulyadoptedpriortotheissuanceofanysharesofaparticularseriesofPreferredStockdesignatedbytheBoard,.ofDirectors,thevotingrights,ifany,oftheholdersofsharesofsuchseriesandthedesignations,preferencesandrelative,participating,optional~ndotherspecialrightsofeachseriesandthequalifications,limitationsandrestrictionsthereof(the"PreferredtockDesignation").G-1
...WithoutlimitingthegeneralityoftheforegoingauthorityoftheBoardofDirectors,theBoardofDirectorsfromtimetotimemay:(a)establishanddesignate,aseriesofPreferredStock,whichmaybedistinguishedbynumber,letterortitlefromotherPreferredStockoftheCorporationoranyseriesthereof;(b)fixandthereafterincreaseordecrease(butnotbelowthenumberofsharesthereofthenoutstanding)thenumberofsharesthatshallconstitutesuchseries;h(c)providefordividendsonsharesofsuchseriesandifprovisionismadefordividends,determinethedividendrateandthedatesonwhichdividends,ifdeclared,shallbepayable,whetherthedividendsshallbecumulativeand,ifcumulative,forwhatdateordatesdividendsshallaccrue,andtheotherconditions,ifany,includingrightsofpriority,ifany,uponwhichthedividendsshallbepaid;(d)provideastowhetherthesharesofsuchseriesshallberedeemable,andifredeemable,theterms,limitationsandrestrictionswithrespecttosuchredemption,includingwithoutlimitation,themannerofselectingsharesforredemptioniflessthanallsharesaretoberedeemed,thetimeortimesandthepriceorpricesatwhichthesharesofsuchseriesshallbesubjecttoredemption,inwholeorinpart,andtheamount,ifany,inadditiontoanyaccrueddividendsthereonwhichtheholdersofsharesofanyseriesshallbeentitledtoreceiveupontheredemptionthereof,whichamountmayvaryatdifferentredemptiondatesandmaybedifferentwithrespecttosharesredeemedthroughtheoperationofanypurchase,retirementorsinkingfundandwithrespecttosharesotherwiseredeemed;'l(e)fixtheamount,inadditiontoanyaccrueddividendsthereon,whichtheholdersofsharesofsuchseriesshallbeentitledtoreceiveuponthevoluntaryorinvoluntaryliquidation,dissolutionorwindingupoftheCorporation,w'hichamountmayvaryatdifferentdatesandmayvarydependingonwhethersuchliquidation,dissolutionorwindingupisvoluntaryorinvoluntary,andtodetermineanyotherrights,ifany,tow'hichholdersofthesharesofsuchseriesshallbeentitledintheeventofanyliquidation,dissolutionorwindingupoftheCorporation;(f)establishwhetherthesharesofsuchseriesshallbesubjecttotheoperationofapurchase,retiremenorsinkingfundandifso,theterms,limitationsandrestrictionswithrespectthereto,includingwithoutlimitation,whethersuchpurchase,retirementorsinkingfundshallbecumulativeornoncumulative,theextenttoandthemannerinwhichsuchfundsshallbeappliedtothepurchase,retirementorredemptionofthesharesofsuchseriesforretirementortoothercorporatepurposesandthetermsandprovisionsrelativetotheoperationthereof;(g)determinetheextentofthevotingrights,ifany,ofthesharesofsuchseriesanddeterminewhetherthesharesofsuchserieshavingvotingrightsshallhavemultiplevotespershare;(h)providewhetherornotthesharesofsuchseriesshallbeconvertibleintoorexchangeableforsharesofanyotherclassorclassesofcapitalstockoftheCorporation,includingCommonStock,PreferredStockorofanyseriesthereof,andifconvertibleorexchangeable,establishtheconversionorexchangepriceorrate,theadjustmentsthereof,andtheothertermsandconditions,ifany,onwhichsuchsharesshallbeconvertibleorexchangeable;and(i)provideforanyotherpreferences,anyrelativeparticipating,optionalorotherspecialrights,anyqualifications,limitationsorrestrictionsthereof,oranyothertermorprovisionofsharesofsuchseriesastheBoardofDirectorsmaydeemappropriateordesirable.SharesofPreferredStockmaybeissuedbytheCorporationforsuchconsiderationasisdeterminedbytheBoardofDirectors.Section4.TheCommonStockshallbesubjecttotheexpresstermsofthePreferredStockandanyseriesthereof.Theholdersof,sharesofCommonStockshallbeentitledtoonevoteforeachsuchshareuponallproposalspresentedtotheshareholdersonwhichtheholdersofCommonStockareentitledtovote.Exceptasotherwiseprovidedby'aworbytheresolutionorresolutionsadoptedbytheBoardofDirectorsdesignatingthrights,powersandpreferencesofanyseriesofPreferredStock,theCommonStockshallhavetheexclusiverigG-2 ttovotefortheelectionofDirectorsandforallotherpurposes,andholdersofPreferredStockshallnotbeentitledtoreceivenoticeofanymeetingofshareholdersat.whichtheyarenotentitledtovote:ThenumberofauthorizedsharesofPreferred'Stockmaybeincreasedordecreased(butnotbelowthe'umber,ofsharesthereofthenoutstanding)bytheaffirmativevoteoftheholdersofamajorityoftheoutstandingsharesofCommonStock,withoutavoteoftheholdersofthePreferredStock,orofanyseriesthereof,unlessavoteofanysuchholdersisrequiredpursuanttoanyPreferredStockDesignation.TheCorporationshallbeentitledtotreatthepersoninwhosenameanyshareofi}sstockisregisteredastheownerthereof'forallpurposes'ndshallnotbeboundtorecognizeanyequitableorotherclaimto,orinterestin,suchshareonthepartofanyotherperson,whetherornottheCorporationshallhavenoticethereof,exceptasexpresslyprovidedbyapplicablelaw.ARTICLEVSHAREHOLDERACTIONAnyactionrequiredorpermittedtobetakenbytheshareholdersoftheCorporationmustbeeffectedatadulycalledannualorspecialmeetingofsuchholdersandmaynotbeeffectedbyanyconsentinwritingbysuchholders.ExceptasotherwiserequiredbylawandsubjecttotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidation,specialmeetingsofshareholdersoftheCorporationforanypurposeorpurposesmaybecalledonlybytheBoardofDirectorspursuanttoaresolutionstatingthepurposeorpurposesthereofapprovedbyamajorityoftheto}al'numberofDirectorswhichtheCorporationwouldhaveiftherewerenovacancies(the"WholeBoard")andanypowerofshareholderstocallaspecialmeetingisspecificallydenied.Nobusinessotherthanthatstatedinthenoticeshallbetransactedatanyspecialmeeting.ARTICLEVIELECTIONOFDIRECTORSeUnlessandexcepttotheextentthattheBy-LawsoftheCorporationshallsorequire,theelectionofDirectorsoftheCorporationneednotbebywrittenballot.ARTICLEVIIBOARDOFDIRECTORSSection1.Number,ElectionandTerms.ExceptasotherwisefixedbyorpursuanttotheprovisionsofArticleIVhereofrelatingtotherightsoftheholdersofan'yclassorseriesofstockhavingapreferericeoyertheCommonStockastodividendsoruponliquidationtoelectadditionalDirectorsunderspecifiedcfrcumstances,thenumberoftheDirectorsoftheCorporationshallbefixedfromtimetotimeexclusivelypursuanttoaresolutionadoptedbyamajorityoftheWholeBoard.NodecreaseinthenumberofDirectors,'ow'ever,shallshortenthetermofanyincumbentDirector.DirectorsshallbeelectedbytheshareholdersoftheCorporationattheirannualmeeting,exceptashereinotherwiseprovidedfornewlycreateddirectorshipsandvacancies,toserveforoneyearoruntiltheirsuccessorsareelectedorchosenandqualified.Section2.ShareholderNominationofDirectorCandidates;ShareholderProposal.ofBusiness.AdvancenoticeofshareholdernominationsfortheelectionofDirectorsandoftheproposalofbusinessbyshareholdersshallbegiveninthemannerprovidedintheBy-LawsoftheCorporation,asamendedandineffectfromtimetotime.Section3.NewlyCreatedDirectorshipsandVacancies.ExceptasotherwiseprovidedfororfixedbyorpursuanttotheprovisionsofArticleIVhereofrelatingtotherightsoftheholdersofanyclassorseriesof~~tockhavingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectDirectorsunderpecifiedcircumstances,newlycreateddirectorshipsresultingfromanyincreaseinthenumberofDirectorsandG-3 anyvacanciesontheBoardofdirectorsresultingfromdeath,resignation,disqualification,removalorothercauseshallbefilledbytheaffirmativevoteofamajorityoftheremainingDirectorstheninoffice,eventhoughlessthanaquorumoftheBoardofDirectors,andnotbytheshareholders.AnyDirectorelectedinaccordancewiththeprecedingsentenceshallholdofficefortheremainderofsuchunexpiredtermoruntilsuchDirector'ssuccessorshallhavebeendulyelectedorchosenandqualified.Nodecreaseinthenumber'ofDirectorsconstitutingtheBoardofDirectorsshallshortenthetermofanyincumbentDirector.Section4.Removal.SubjecttotherightsofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectDirectorsunderspecifiedcircumstances,anyDirectormayberemovedfromofficeonlyforcausebytheaffirmativevoteoftheholdersofatleasta,majorityofthevotingpowerofallsharesoftheCorporationentitledtovotegenerallyintheelectionofDirectors(the"VotingStock")thenoutstanding,votingtogetherasasingleclass.Section5.Amendment,Repeal,Etc.NotwithstandinganythingcontainedinthisCertificateofIncorporationtothecontrary,theaffirmativevoteoftheholdersofatleast80%ofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass,shallberequiredtoalter,amend,adoptanyprovisioninconsistentwithorrepealthisArticleVII.ARTICLEVIIIBY-LAWSTheBy-LawsmaybealteredorrepealedandnewBy-Lawsmaybeadopted(1)atanyannualorspecialmeetingofshareholders,bytheaffirmativevoteoftheholdersofamajorityofthevotingpowerofthestockissuedandoutstandingandentitledtovotethereat,provided,however,thatanyproposedalterationorrepealof,ortheadoptionofanyBy-Lawinconsistentwith,Section2.2,2.7or2.10ofArticleHoftheBy-LawsorwithSection3.9or3.11ofArticleIIIoftheBy-Laws,bytheshareholdersshallrequiretheaffirmativevoteoftheholdersofatleast80%ofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass;andprovided,further,however,thatinthecaseof"anysuchshareholderactionataspecialmeetingofshareholders,noticeoftheproposedalteration,repealor,adoptionofthenewBy-LaworBy-Lawsmustbcontainedinthenoticeofsuchspecialmeeting,or(2)bytheaffirmativevoteofamajorityoftheWholeBoard;providedthatanypr'oposedalterationorrepealof,ortheadoptionofanyBy-Lawinconsistentwith,Section4.9or4.11oftheArticleIVoftheBy-LawsbytheBoardofDirectorsshallrequirethevoteoftwo-thirdsoftheWholeBoard.ARTICLEIXAMENDMENTOFCERTIFICATEOFINCORPORATIONTheCorporationreservestherightatanytimefromtimetotimetoamend,alter,changeorrepealanyprovisioncontainedinthisCertificateofIncorporation,andanyotherprovisionsauthorizedbythelawsoftheStateofNewYorkatthetimeinforcemaybeaddedorinserted,inthemannernoworhereafterprescribedbylaw;and,exceptassetforthinArticlesXIVandXV,allrights,preferencesandprivilegesofwhatsoevernatureconferreduponshareholders,DirectorsoranyotherpersonswhomsoeverbyandpursuanttothisCertificateofIncorporationinitspresentformorashereafteramendedaregrantedsubjecttotherightreservedinthisArticle,NotwithstandinganythingcontainedinthisCertificateofIncorporationtothecontrary,theaffirmativevoteoftheholdersofatleast80%oftheVotingStockthenoutstanding,votingtogetherasasingleclass,shallberequiredtoalter,amend,adoptanyprovisioninconsistentwithorrepealArticleV,VII,VIIIorthissentence.ARTICLEXAGENTFORSERVICEOFPROCESSTheSecretaryofStateoftheStateofNewYorkisdesignatedasagentoftheCorporationuponwhomprocessagainsttheCorporationmaybeserved.ThepostofficeaddresstowhichtheSecretaryofStateshallmailacopy-ofanyprocessagainsttheCorporationserveduponhimis:c/oC.TCorporationSystem,1633BroadwayNewYork,NewYork10019.
ARTICLEXIREGISTEREDAGENTThenameandaddressoftheregisteredagentwhichistobetheagentoftheCorporationuponwhomprocessagainstitmaybeserved,areCTCorporationSystem,1633Broadway,NewYork,NewYork10019.IARTICLEXIIDURATIONrThedurationoftheCorporationshallbeperpetual.ARTICLEXIIINOPREEMPTIVERIGHTSTheholdersofequitysharesandtheholdersofvotingshares(aseachtermisdefinedinSection622oftheNYBCL)oftheCorporationshallnothaveanypreemptiverights.ARTICLEXIVLIMITEDLIABILITY;INDEMNIFICATIONSection1.Eachpersonwhowasorismadeapartyoristhreatenedtobemadeapartytoorisinvolvedinanyaction,suitorproceeding,orappealthereof,whethercivil,criminal,administrativeorinvestigative(hereinaftera"proceeding"),byreasonofthefactthatheorshe,orapersonofwhomheorsheisthelegalrepresentative,isorwasaDirectororofficeroftheCorporationorisorwasservingattherequestoftheCorporationasaDirector,officer,employeeoragentofanothercorporationorofapartnership,jointventure,trust,orotherenterprise,includingservicewithrespecttoemployeebenefitplans,whetherthebasisofsuchproceedingisallegedactioninanofficialcapacityasaDirector,officer,employeeoragentorinanyothercapacitywhileservingasaDirector,officer,employeeoragent,.shallbeindemnifiedandheldharmlessbytheCorporationtothefullestextentauthorizedbytheNYBCL,asthesameexistsormayhereafterbeamended(but,inthecaseofanysuchamendment,onlytotheextentthatsuchamendmentpermitstheCorporationtoprovide'broaderindemnificationrightsthansaidlawpermittedtheCorporationtoprovidepriortosuchamendment),againstallexpense,liabilityandloss(including,butnotlimitedto,allattorneys'ees,judgments,fines,ERISAexcisetaxesorpenaltiesandamountspaidortobepaidinsettlement)reasonablyincurredorsufferedbysuchpersoninconnectiontherewithandsuchindemnificationshallcontinueastoapersonwhohasceasedtobea,Director,officer,employeeora'genta'ndshallinuretothebenefitofhisorherheirs,executorsandadministrators;provided,however,that,exceptasprovidedinSection2ofthisArticle-XIV,theCorporationshallindemnifyanysuchpersonseekingindemnificationinconnectionwithaproceeding(orpartthereof)initi'atedbysuchpersononlyifsuchproceeding(orpartthereof)wasauthorizedbytheBoardofDirectorsoftheCorporation.TherighttoindemnificationconferredinthisSection1shallbeacontractrightandshallincludetherighttobepaidbytheCorporationtheexpenses(including,withoutlimitation,attorneys'ees)incurredindefendinganysuchproceedinginadvanceofitsfinaldisposition;provided,however,that,iftheNYBCLrequires,thepaymentofsuchexpensesincurredbyaDirectororofficerinhisorhercapacityasaDirectororofficer(andnotinanyothercapacityinwhichservicewasorisrenderedbysuchpersonwhileaDirectororofficer,including,withoutlimitation,servicetoanemployeebenefitplan)inadvanceofthefinaldispositionofaproceedingshallbemadeonlyupondeliverytotheCorporationofanundertaking,byoronbehalfofsuchDirectororofficer,torepayallamountssoadvancedifitshallultimatelybedeterminedthatsuchDirectororofficerisnotentitledtobeindemnifiedunderthisArticleXIVorotherwise.TheCorporationmay,byactionofitsBoardofDirectors,provideindemnificationtoemployeesandagentsoftheCorporationwiththesamescopendeffectastheforegoingindemnificationofDirectorsandofficers,oronsuchothertermsandconditionsasheBoardofDirectorsmaydeemnecessaryordesirable.G-5 Section2.IfaclaimunderSection1ofthisArticleXIVisnotpaidinfullbytheCorporationwithinthirtydaysafterawrittenclaimhasbeenreceivedbytheCorporation,theclaimantmayatanytimethereafterbringsuitagainsttheCorporationtorecovertheunpaid'amountoftheclaimand,ifsuccessfulinwholeorinpart,theclaimantshallbeentitledtobepaidalsotheexpense(including,withoutlimitation,attorneys'ees)ofprosecutingsuchclaim.Itshallbeadefensetoanysuchaction(otherthananactionbroughttoenforceaclaimforexpensesincurredindefendinganyproceedinginadvanceofitsfinaldispositionwheretherequiredundertaking,ifanyisrequired,hasbeentenderedtotheCorporation)thattheclaimanthasnotmetthestandardsofconductwhichmakeitpermissibleundertheNYBCLfortheCorporationtoindemnifytheclaimantfortheamountclaimed,buttheburdenofprovingsuchdefenseshallbeontheCorporation.NeitherthefailureoftheCorporation(includingitsBoardofDirectors,oranypartthereof,independentlegalcounsel,oritsshareholders)tohavemadeadeterminationpriortothecommencementofsuchactionthatindemnificationoftheclaimantisproperinthecircumstancesbecauseheorshehasmettheapplicablestandardofconductsetforthintheNYBCL,noranactualdeterminationbytheCorporation(includingitsBoardofDirectors,oranypartthereof,independentlegalcounsel,oritsshareholders)thattheclaimanthasnotmetsuchapplicablestandardofconduct,shallbeadefensetotheactionorcreateapresumptionthattheclaiinanthasnotmettheapplicablestandardofconduct.Section3.TherighttoindemnificationandthepaymentofexperisesincurredindefendingaproceedinginadvanceofitsfinaldispositionconferredinthisArticleXIVshallnotbe*exclusiveofanyoth'errightwhichanypersonmayhaveorhereafteracquireunderanystatute,provisionoftheCertificateofIncorporation,By-Law,agreement,voteofshareholdersordisinterestedDirectorsorotherwise.Section4.TheCorporationmaymaintaininsurance,atitsexpense,toprotectitselfandanyDirector,officer,employeeoragentoftheCorporationoranothercorporation,partnership,jointventure,trustorotherenterpriseagainstanyexpense,liabilityorloss,tothefullestextentallowedbylaw,whetherornottheCorporationwouldhavethepowertoindemnifysuchpersonagainstsuchexpense,liabilityor.lossundertheNYBCL.ARTICLEXVDIRECTORLIABILITYADirectoroftheCorporationshallnotbepersonallyliabletotheCorporationoritsshareholdersfordamagesforanybreachofdutyinsuchcapacityexceptthattheliabilityofaDirectorshallnotbesolimitedif(1)ajudgmentorotherfinaladjudicationadversetohimestablishesthathisactsoromissionswereinbadfaithorinvolvedintentionalmisconductoraknowingviolationoflaworthathepersonallygainedinfactafinancialprofitorotheradvantagetowhichhewasnotlegallyentitledorthathisactsviolatedSection719oftheNYBCL,or(2)hisactsoromissionsoccurredpriortotheadoptionofthisprovision.NoamendmenttoorrepealofthisArticleXVshallapplytoorhaveanyeffectontheliabilit'yorallegedliabilityofanyDirectoroftheCorporationfororwithrespecttoanyactsoromissionsofsuchDirectoroccurringpriortosuchamendmentorrepeal.IftheNYBCLisamendedhereaftertoexpandorlimitthe'liabilityofadirector',thentheliabilityofaDirectoroftheCorporationshallbeexpandedtotheextentrequiredoxlimitedtotheextentpermittedbytheNYBCL,assoamended.
AFORMOFBY-LAWSOFTHEHOLDINGCOMPANYINCORPORATEDUNDERTHELAWSOFTHESTATEOFNEWYORKANNEXHARTICLEI,OFFICESANDRECORDSSection1.1.NewYorkOffice.TheofficeoftheCorporationintheStateofNewYorkshallbelocatedintheCountyofSection1.2.OtherOffices.Thecorporationmayhavesuchotheroffices,eitherwithinorwithouttheStateofNewYork,astheBoardofDirectorsmaydesignateorasthebusinessoftheCorporationmayfromtimetotimerequire.Section1.3.BooksandRecords.ThebooksandrecordsoftheCorporationmaybekeptoutsidetheStateofNewYorkatsuchplaceorplacesasmayfromtimetotimebedesignatedbytheBoardofDirectors.ARTICLEIISHAREHOLDERSII~~~~Section2.1.AnnualMeeting.'heannualmeetingoftheshareholdersoftheCorporationshallbeheldns'uchdateandatsuchtimeasmaybefixedbyresolutionoftheBoardofDirectors.ISection2.2.SpecialMeeting.=ExceptasotherwiserequiredbylawandsubjecttotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidation,special'meetingsofshareholdersoftheCorporationforanypurposeorpurposesmaybecalledonlybytheBoardofDirectorspursuanttoaresolutionstatingthepurposeorpurposesthereofapprovedbyamajorityofthetotalnumberofDirectorswhichtheCorporationwouldhaveiftherewerenovacancies(the"WholeBoard").Section23.PlaceofMeeting.TheBoardofDirectorsmaydesignatetheplaceofmeetingfor'nyannualmeetingorforanyspecialmeetingoftheshareholders.Ifnodesignationissomade,theplaceofmeetingshallbetheprincipalofficeoftheCorporation.Section2.4.Notice.ofMeeting.Writtenorprintednotice,statingtheplace,dayandhourofthemeetingandthepurposeorpurposesforwhichthemeetingiscalled,shallbedeliveredbytheCorporation.notlessthan10calendardaysnormorethan50calendardaysbeforethedateofthemeeting,eitherpersonallyorbymail,toeachshareholderofrecordentitledtovoteatsuchmeeting.Ifmailed,suchnoticeshallbedeemedtobedeliveredwhendepositedintheUnitedStatesmailwithpostagethereonprepaid,addressedtotheshareholderatsuchperson'saddressasit.appearsonthestocktransferbooksoftheCorporation.Suchfurthernoticeshallbegivenasmayberequiredbylaw.Onlysuchbusinessshallbeconductedataspecialmeetingof'shareholdersasshallhavebeenbroughtbeforethemeetingpursuant,totheCorporation'snoticeofmeeting.Meetingsmaybeheldwithoutnoticeifallshareholdersentitledtovotearepresent,orifnoticeiswaivedbythosenotpresentinaccordancewithSection6.4oftheseBy-Laws.Any'previouslyscheduledmeetingof,theshareholdersmaybeostponed,andanyspecialmeetingoftheshareholdersmaybecanceled,byresolutionoftheBoardofDirectorsponpublicnoticegivenpriortothedatepreviouslyscheduledforsuchmeetingofshareholders.H-I Section2.5.QuorumandAdjournment;Voting.ExceptasotherwiseprovidedbylaworbythCertificateofIncorporation,theholdersofamajorityofthevotingpowerofalloutstandingsharesoftheCorporationentitledtovotegenerallyintheelectionofDirectors(the"VotingStock"),representedinpersonorbyproxy,shallconstituteaquorumatameetingofshareholders,exceptthatwhenspecifiedbusinessistobevotedonbyaclassorseriesofstockvotingasaclass,theholdersofamajorityofthesharesofsuchclassorseriesshallconstituteaquorumofsuchclassorseriesforthetransactionofsuchbusiness.TheChairmanofthemeetingmayadjournthemeetingfromtime'otime,whetherornotthereissuchaquorum.Nonoticeofthetimeandplaceofadjournedmeetingsneedbegivenexceptasrequiredbylaw.Theshareholderspresentatadulycalledmeetingatwhichaquorumispresentmaycontinuetotransactbusinessuntiladjournment,notwithstandingthewithdrawalofenoughshareholderstoleavelessthanaquorum.Section2,6,Proxies.Atallmeetingsofshareholders,ashareholdermayvotebyproxyexecutedinwriting(orin.suchmannerprescribedbytheNewYorkBusinessCorporationLaw(the"NYBCL"))bytheshareholder,orbysuchperson'sdulyauthorizedattorneyinfact.Section2.7.NoticeofShareholderBusinessandNominations.(A)ArvuialMeetingsofShareholders.(1)NominationsofpersonsforelectiontotheBoardofDirectorsoftheCorporationandtheproposalofbusinesstobeconsideredbytheshareholdersmaybemadeatanannualmeetingofshareholders,(a)pursuanttotheCorporation'snoticeofmeetingpursuanttoSection2.4of,theseBy-Laws,(b)byoratthedirectionofthe,BoardofDirectorsor(c)byanyshareholderoftheCorporationwhowasashareholderofrecordatthetimeofgivingofnoticeprovidedforinthisBy-Law,whoisentitledtovoteatthemeetingandwhocomplieswiththenoticeproceduressetforthinthisBy-Law.(2)Fornominationsorotherbusinesstobeproperlybroughtbeforeanannualmeetingbyashareholderpursuanttoclause(c)ofparagraph(A)(1)ofthisBy-Law,theshareholdermusthavegiventimelynoticethereofinwritingtotheSecretaryoftheCorporationandsuchotherbusinessmust,otherwisebeapgopermatterfo~shareholderaction.Tobetimely,as)>areholder'snoticeshallbedeliveredtotheSecretaryattheprincipa~executiveofficesoftheCorporationnotlaterthanthecloseofbusinessonthe60thcalendardaynorearlierthanthecloseofbusinessonthe90thcalendardaypriortothefirstanniversaryofthepreceding-year'sannualmeeting;provided,however,thatintheeventthatthedateoftheannualmeetingismorethan30calendardaysbeforeormorethan60calendardaysaftersuchanniversarydate,noticebytheshareholdertobetimelymustbesodeliverednotearlierthanthecloseofbusinessonthe90thcalendardaypriortosuchannual,meetingandnotlaterthanthecloseofbusinessonthelaterofthe60thcalendardaypriortosuchannualmeetingorthe10thcalendardayfollowingthecalendardayonwhichpublicannouncementofthedateofsuchmeetingisfirstmadebytheCorporation.Forpurposesofdeterminingwhetherashareholder'snoticeshallhavebeendeliveredinatimelymannerfortheannualmeeting,ofshareholdersinI99',thefirstanniversaryofthepreviousyear'meetingshallbe.,deemedtobe,199.,Innoeventshallthepublicannouncementofanadjournmentofanannualmeetingcommenceanewtimeperiodforthegivingofashareholder'snoticeasdescribedabove.Suchshareholder'snoticeshallsetforth(a)astoeachpersonwhomtheshareholderproposestonominateforelectionorreelectionasaDirectorallinformationrelatingtosuchpersonthatisrequiredtobedisclosedin,solicitationsofproxiesforelectionofDirectorsinanelectioncontest,orisotherwiserequired,ineachcasepursuanttoRegulation14AundertheSecuritiesExchangeActof1934,asamended(the"ExchangeAct")andRule14a-.11.thereunder(includingsuchperson'swrittenconsenttobeingnamedintheproxystatementasanomineeandtoservingasaDirectorifelected);(b)astoanyotherbusinessthattheshareholderproposestobringbeforethemeeting,abriefdescriptionofthebusinessdesiredto,bebroughtbeforethemeeting,thereasonsforconductingsuchbusinessatthemeetingandany.materialinterestinsuchbusinessofsuchshareholderandthebeneficialowner,ifany,onwhosebehalftheproposalismade;and(c)astotheshareholdergivingthenoticeandthebeneficialowner,ifany,onwhosebehalfthenominationorproposalismade(i)thenameandaddressofsuchshareholder,astheyappearontheCorporation'sbooks,andofsuchbeneficialownerand(ii)theclassandnumberofsharesoftheCorporationwhichareownedbeneficiallyandofrecordbysucshareholderandsuchbeneficialowner.H-2 t(3)Notwithstandinganythinginthesecondsentenceofparagraph(A)(2)ofthisBy-Lawtothecontrary,intheeventthatthenumberofDirectorstobeelectedtotheBoardofDirectorsoftheCorporationisincreasedandthereisnopublicannouncementbytheCorporationnamingallofthenomineesforDirectororspecifyingthesizeoftheincreasedBoardofDirectorsatleast70calendardayspriortothefirstanniversaryoftheprecedingyear'sannualmeeting,ashareholder'snoticerequiredbythisBy-Lawshallalsobeconsideredtimely,butonlywithrespecttonomineesforanynewpositionscreatedbysuchincrease,ifitshallbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCorporationnotlaterthanthecloseofbusinessonthe10thcalendardayfollowingthedayonwhichsuchpublicannouncementis.firstmadebytheCorporation.(B)SpecialMeetingsofShareliolders.Nominationsofpersonsforelectiontothe'BoardofDirectorsmaybemadeataspecialmeetingofshareholdersatwhichDirectorsaretobeelectedpursuanttotheCorporation',snoticeofmeeting(a)byoratthedirectionoftheBoardofDirectorsor(b)providedthattheBoardofDirectorshasdeterminedthatDirectorsshallbeelectedatsuchmeeting,byanyshareholderoftheCorporationwhoisashareholderofrecordatthetimeofgivingofnoticeprovidedforinthisBy-Law,whoshallbeentitledtovoteatthemeetingandwhocomplieswiththenoticeproceduressetforthinthisBy-Law.IntheeventtheCorporationcallsaspecialmeetingofshareholdersforthepurposeofelectingoneormoreDirectorstotheBoardofDirectors,anyshareholdermaynominateapersonorpersons(asthecasemaybe),forelectiontosuchposition(s)asspecifiedintheCorporation'snoticeofmeetingpursuanttoclause(b)oftheprecedingsentence,iftheshareholder'snoticecomplyingwiththerequirementsofclauses(a)and(c)ofparagraph(A)(2)ofthisBy-LawshallbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCorporationnotearlierthanthecloseofbusinessonthe90thcalendardaypriortosuchspecialmeetingandnotlaterthanthecloseofbusinesson-thelaterofthe60thcalendardaypriortosuchspecialmeetingorthe10thcalendardayfollowingthedayonwhichpublicannouncementisfirstmadeofthedateofthespecialmeetingandofthenomineesproposedbytheBoardofDirectorstobeelectedatsuchmeeting.Innoeventshallthepublicannouncementofanadjournmentofaspecialmeetingcommenceanewtimeperiodforthegivingofashareholder'snoticeasdescribedabove.(C)General.(1)OnlysuchpersonswhoarenominatedinaccordancewiththeproceduressetforthinthisBy-LawshallbeeligibletoserveasDirectorsandonlysuchbusinessshallbeconductedatameetingofshareholdersasshallhavebeenbroughtbeforethemeetinginaccordancewith.theproceduressetforth,inthisBy-Law.Exceptasotherwiseprovidedbylaw,theCertificateofIncorporationortheseBy-Laws,theChairmanofthemeetingshallhavethepoweranddutytodeterminewhetheranominationoranybusinessproposedtobebroughtbeforethemeetingwasmadeorproposed,asthecasemaybe,inaccordancewiththeproceduressetforthinthisBy-Lawand,ifanyproposednominationorbusinessisnotincompliancewit6thisBy-Law,todeclarethatsuchdefectiveproposalornominationshallbedisregarded.(2)ForpurposesofthisBy-Law,"publicannouncement"shallmean'disclosureinapressreleasereportedbytheDowJonesNewsService,AssociatedPressorcomparablenationalnewsserviceorinadocumentpubliclyfiledbytheCorporationwiththeSecuritiesandExchangeCommissionpursuanttoSection13,14or15(d)oftheExchangeAct.(3)NotwithstandingtheforegoingprovisionsofthisBy-Law,ashareholdershallalsocomplywithallapplicablerequirementsoftheExchangeActandtherulesandregulationsthereunderwithrespecttothematterssetforthinthisBy-Law.NothinginthisBy-Lawshallbedeemedtoaffectanyrights(i)ofshareholderstorequestinclusionofproposalsintheCorporation'sproxystatementpursuant'toRule14a-8undertheExchangeActor(ii)oftheholdersofanyseriesofPreferredStocktoelectDirectorsunderanapplicablePreferredStockDesignation(asdefinedintheCertificateofIncorporation).Section2.8,ProcedureforElectionofDirectors;RequiredVote.ElectionofDirectorsatallmeetingsoftheshareholdersatwhichDirectorsaretobeelectedshallbebyballot,and,subjecttotherightsoftheholdersofanyseriesofPreferredStocktoelectDirectorsunderanapplicablePreferredStockDesignation,apluralityofthevotescastthereatshallelectDirectors.Exceptasotherwiseprovidedbylaw,theCertificateofIncorporation,PreferredStockDesignation,ortheseBy-Laws,inallmattersotherthantheelectionofDirectors,theaffirmativetvoteofamajorityofthevotingpowerofthe.sharespresentinpersonorrepresentedbyproxyatthemeetingandentitledtovoteonthemattershallbetheactoftheshareholders.H-3 Section2.9.InspectorsofElections;OpeningandClosingthePolls.TheBoardofDirectorsbyresolutionshall.appoint,orshallauthorizeanofficeroftheCorporationtoappoint,oneormoreinspectors,whichinspectororinspectorsmayincludeindividualswhoservetheCorporationinothercapacities,including,withoutlimitation,asofficers,employees,agentsorrepresentatives,toactatthemeetingsofshareholdersandmakeawrittenreportthereof.Oneormorepersonsmaybedesignatedasalternateinspector(s)toreplaceanyinspectorwho'failstoact.Ifnoinspectororalternatehasbeenappointedtoactorisabletoactatameeting,ofshareholders,theChairmanofthemeetingshallappointoneormoreinspectorstoactatthemeeting.Eachinspector,beforedischargingsuchperson'sduties,shalltakeandsignanoathfaithfullytoexecutethedutiesofinspectorwithstrictimpartialityandaccordingtothebestofsuchperson'sability.Theinspector(s)shallhavethedutiesprescribedbylaw.TheChairmanofthemeetingshallfixandannounceatthemeetingthedateandtimeoftheopeningandtheclosingofthepollsforeachmatteruponwhichtheshareholderswillvoteatameeting.'ection2.10.NoShareholderActionbyWrittenConsent.Anyactionrequiredor'ermittedtobetakenbytheshareholdersoftheCorporationmustbeeffectedatadulycalledannualorspecialmeetingofsuchholdersandmaynotbeeffectedbyanyconsentinwritingbysuchholders.ARTICLEIII~~BOARDOFDIRECTORSSection3.1.GeneralPowers.ThebusinessandaffairsoftheCorporationshallbemanagedunderthedirectionoftheBoardofDirectors.InadditiontothepowersandauthoritiesbytheseBy-Lawsexpresslyconferreduponthem,theBoardofDirectorsmayexerciseallsuchpowersoftheCorporationanddo'allsuchlawfulactsandthingsasarenotbystatuteorbytheCertificateofIncorporationorbytheseBy'-Lawsrequiredtobeexercisedordonebytheshareholders.ADirectorofthisCorporationneednotbeashareholdertherein.Section3,2.NumberandTenure.ExceptasotherwisefixedbyorpursuanttotheprovisionsofArticleIVoftheCertificateofIncorporationrelatingtotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectadditionalDirectorsunderspecifiedcircumstances,thenumberoftheDirectorsoftheCorporationshallbefixedfromtimetotimeexclusivelypursuanttoaresolutionadoptedbyamajorityoftheWholeBoard.NodecreaseinthenumberofDirectors,however,'hallshortenthetermofanyincumbentDirector.DirectorsshallbeelectedbytheshareholdersoftheCorporationattheirannualmeeting,exceptashereinotherwiseprovidedforvacanciesandnewlycreateddirectorships,inthemanner,providedinArticleII,hereof,toserveforoneyearoruntiltheirsuccessorsare.electedorchosenandqualified.Section33.RegularMeetings.AregularmeetingoftheBoardofDirectorsshallbeheldwithoutothernoticethanthisBy-Lawimmediatelyafter,andatthesameplaceas,theannualmeetingofshareholders.TheBoardofDirectorsmay,byresolution,provide,the'timeandplacefortheholdingofadditionalregularmeetingswithoutothernoticethansuchresolution.Section3.4.SpecialMeetings.SpecialmeetingsoftheBoardofDirectorsshallbecalledattherequestoftheChairmanoftheBoard,thePresidentoramajorityoftheBoardofDirectorstheninoffice,ThepersonorpersonsauthorizedtocallspecialmeetingsoftheBoardofDirectorsmayfixtheplaceandtimeofthemeetings.Section3.5.Notice.NoticeofanyspecialmeetingofDirectorsshallbegiventoeachDirectoratsuchperson'sbusinessorresidenceinwritingbyhanddelivery,first-classorovernightmailorcourierservice,telegramorfacsimiletransmission,ororallybytelephone.Ifmailedbyfirst-classmail,suchnoticeshallbedeemedadequatelydeliveredwhendepositedintheUnitedStatesmailssoaddressed,withpostagethereonprepaid,atleast5calendardaysbeforesuchmeeting.Ifbytelegram,overnightmailorcourierservice,suchnoticeshallbedeemedadequatelydeliveredwhenthetelegramisdeliveredtothetelegraphcompanyorthenoticeisdeliveredtotheovernightmailorcourierservicecompanyatleast&hoursbeforesuchmeeting.IfbyHP facsimiletransmission,suchnoticeshallbedeemedadequatelydeliveredwhenthenoticeistransmittedatleast~~12hoursbeforesuchmeeting.Ifbytelephoneorbyhanddelivery,thenoticeshallbegivenatleast12hourspriortothetimesetforthemeeting.Neitherthebusinesstobetransactedat,northepurposeof,anyregularorspecialmeetingoftheBoardofDirectorsneedbespecifiedinthenoticeofsuchmeeting,exceptforamendmentstotheseBy-Laws.AmeetingmaybeheldatanytimewithoutnoticeifalltheDirectorsarepresentorifthosenotpresentwaivenoticeofthemeetingeitherbeforeoraftersuchmeeting.Section3.6.ActionbyConsentofBoardofDirectors.AnyactionrequiredorpermittedtobetakenatanymeetingoftheBoardofDirectorsorofanycommitteethereofmaybetakenwithoutameetingif'allmembersoftheBoardorcommittee;asthecasemaybe,consenttheretoinwriting,andthewritingorwritingsarefiledwiththeminutesofproceedingsoftheBoardorcommittee.Section3.7.ConferenceTelephoneMeetings.MembersoftheBoardofDirectorsoranycommitteethereof'mayparticipateinameeting'oftheBoardofDirectorsorsuchcommitteebymeansofconferencetelephoneorsimilarcommunicationsequipmentbymeansofwhichallpersonsparticipatinginthemeetingcanheareachother,andsuchparticipationinameetingshallconstitutepresenceinpersonatsuchmeeting.Section3.8.Quorum.SubjecttoSection3.9,awholenumberofDirectorsequaltoatleastamajorityoftheWholeBoardshallconstituteaquorumforthetransactionofbusiness,butifatanymeetingoftheBoardofDirectorsthereshallbelessthanaquorumpresent,amajorityoftheDirectorspresentmayadjournthemeetingfromtimetotimewithoutfurthernotice.TheactofthemajorityoftheDirectorspresentatameetingatwhichaquorumispresentshallbetheactoftheBoardofDirectois.The'Diiectorspresentat'adulyorganizedmeetingmaycontinuetotransactbusinessuntiladjournment,notwithstandingthewithdrawalofenoughDirectorstoleavelessthanaquoru'm'."ISection3.9.Vacancies.Exceptasotherwiseprovidedfororfixedbyorpursuanttotheprovisionsof~~~~~~~ArticleIVoftheCertificateofIncorporationrelatmgtotherightsoftheholdersofanyclassorseriesofstockhavingapreferenceoyertheCommonStockastodividendSoruponliquidationtoelectDirectorsunderspecifiedcircumstances,newlycreateddirectorshipsresultingfromanyincreaseinthenumberofDirectorsandanyvacanciesontheBoardofDirectorsresultingfromdeath,resignation,disqualification,removalorothercauseshallbefilledbytheaffirmativevoteofamajorityoftheremainingDirectorstheninoffice,eventhoughlessthanaquorumoftheBoardofDirectors.AnyDirectorelectedinaccordancewiththeprecedingsentenceshallholdofficefortheremainderofsuchunexpiredtermoruntilsuchDirector'ssuccessorshallhavebeendulyelectedorchosenandqualified.NodecreaseinthenumberofDirectorsconstitutingtheBoardofDirectorsshallshortenthetermofariyincumbentDirector.Section3.10.Committees.(a)TheBoardofDirectorsmay,byresolutionadoptedbyamajorityoftheWholeBoard,designatecommitteestoexercise,subjecttoapplicableprovisionsoflaw,anyorallthepowersoftheBoardinthemanagementofthebusinessandaffairsoftheCorporationwhentheBoardisnotinsession,includingwithoutlimitationthepowertodeclaredividendsandtoauthorizetheissuanceoftheCorporation'scapitalstock.Eaciisuchcommitteeshall,consistoftwoormore,Directorsof,theCorporation.TheBoardmaydesignateoneormoreDirectorsasalternatemembersofanycommittee,whomayreplaceanyabsentordisqualifiedmemberatanymeetingofthecommittee,Anysuchcommitteemaytotheextentpermittedbylawexercisesuchpowersandshallhavesuchresponsibilitiesasshallbespecifiedinthedesignatingresolution.Intheabsenceordisqualificationofanymemberofsuchcommitteeorcommittees,thememberormembersthereofpresentatanymeetingandnotdisqualifiedfromvoting,whetherornotconstitutingaquorum,mayunanimouslyappointanothermemberoftheBoardtoactatthemeetingintheplaceofanysuchabsentordisqualifiedmember.EachcommitteeshallkeepwrittenminutesofitsproceedingsandshallreportsuchproceedingstotheBoardwhenrequired.(b)Amajorityofanycommitteemaydetermineitsactionandfixthetimeandplaceofitsmeetings,unlessheBoardshallotherwiseprovide.NoticeofsuchmeetingsshallbegiventoeachmemberofthecommitteeinH-5 themannerprovidedforinSection3.5oftheseBy-Laws.TheBoardshall.havepoweratanytimetofillvacanciesin,tochangethemembershipofortodissolveanysuchcommittee:NothinghereinshallbedeemedtopreventtheBoardfromappointingoneormorecommitteesconsistinginwholeorinpartofpersonswhoarenotDirectorsoftheCorporation;provided,however,thatnosuchcommitteeshallhaveormayexerciseanyauthorityoftheBoard.Section3.11.Removal.SubjecttotherightsofanyclassorseriesofstockhavingapreferenceovertheCommonStockastodividendsoruponliquidationtoelectDirectorsunderspecifiedcircumstances,anyDirectormayberemovedfromofficeonlyforcausebythe,affirmativevoteoftheholdersofatleastamajorityofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass.Section3.12.Records.TheBoardofDirectorsshallcausetobekeptarecordcontainingtheminutesoftheproceedingsofthemeetingsoftheBoardandoftheshareholders,appropriatestockbooksandregistersandsuchbooksofrecordsandaccountsasmay.benecessaryfortheproperconductofthebusinessoftheCorporation.ARTICLEIVOFFICERSSection4.1,ElectedOfficers.TheelectedofficersoftheCorporationshallbeaChairmanoftheBoardofDirectors,aChiefExecutiveOfficer,aPresident,aSecretary,aTreasurer,andsuchotherofficers(including,withoutlimitationSeniorVicePresidentsandExecutiveVicePresidentsandVicePresidents)astheBoardofDirectorsfromtimetotimemaydeemproper.TheChairmanoftheBoardshallbechosenfromamongtheDirectors.AllofficerselectedbytheBoardofDirectorsshalleachhavesuchpowersanddutiesasgenerallypertaintotheirrespectiveoffices,subjecttothespecificprovisionsofthisArticleIV.Suchofficersshallalsohavesuchpowers,anddutiesasfromtimetotimemaybeconferredbytheBoardofDirectorsorbyanycommitteethereof.TheBoardoranycommitteethereofmayfromtimetotimeelectsuchotherofficer(includingoneormoreVicePresidents,Controllers,AssistantSecretariesandAssistantTreasurers),asmaybenecessaryordesirablefortheconductofthebusinessoftheCorporation.SuchotherofficersandagentsshallhavesuchdutiesandshallholdtheirofficesforsuchtermsasshallbeprovidedintheseBy-LawsorasmaybeprescribedbytheBoardorsuchcommittee,asthecasemaybe.'ection4.2.ElectionandTermofOffice.ExceptasprovidedinSection4.11,theelectedofficersoftheCorporationshallbeelected'annuallybytheBoardofDirectorsattheregularmeetingoftheBoardofDirectorsheldaftertheannualmeetingoftheshareholders.Iftheelectionofofficersshallnotbeheldatsuchmeeting,suchelectionshallbeheldassoonthereafterasconvenient.Eachofficershallholdofficeuntilsuchperson'ssuccessorshallhavebeendulyelectedandshallhavequalifiedoruntilsuchperson'sdeathoruntilheshallresignorberemovedpursuanttoSection4.9.hSection4.3.ChairmanoftheBoard.TheChairmanoftheBoardshallpresideatallmeetingsoftheshareholdersandoftheBoardofDirectors.TheChairmanoftheBoardshallperformallsuchotherdutiesasareproperlyrequiredofhimbytheBoard"ofDirectors.TheChairmanoftheBoardmayalsoserveasPresident,ifsoelectedbytheBoard.TheDirectorsalsomayele'ctaVice-ChairmantoactintheplaceoftheChairmanuponhisorherabsenceorinabilityt6act.Section4.4.ChiefExecutiveOfficer.'heChiefExecutiveOfficeroftheCorporationshallberesponsibleforthegeneralmahagementoftheaffairsoftheCorporationandshallmakereports'totheBoardofDirectorsandtheshareholders,andshallseethatallordersandresolutionsoftheBoardofDirectorsandofanycommitteethereofarecarriedintoeffect.Section4,5.President.ThePresidentshallactinageneralexecutivecapacityandshallassisttheChiefExecutiveOfficerintheadministrationandoperationoftheCorporation'sbusinessandgeneral.supervisionoH-6 titspoliciesandaffairs.ThePresident,ifheorsheisalsoaDirector,shall,intheabsenceoforbecauseoftheinabilitytoactoftheChairmanoftheBoard,performalldutiesoftheChairmanoftheBoardandpresideatallmeetingsofshareholdersandoftheBoardofDirectors.1,,/Section4.6.VicePresidents.EachSeniorVicePresidentandExecutiveVice'PresidentandanyVicePresidentshallhavesuchpowersandshallperformsuchdutiesasshallbeassignedtohimbytheBoardofDirectors.Section4.7.Treasurer.TheTreasurershallexercisegeneralsupervisionoverthereceipt,custodyanddisbursementofcorporatefunds."TheTreasurershallcausethefundsoftheCorporationtobedepositedinsuchbanksasmaybeauthorizedbytheBoardofDirectors,orinsuchbanksasmaybedesignatedasdepositoriesinthemannerprovidedbyresolutionoftheBoardofDirectors.TheTreasurershallhavesuchfurtherpowersanddutiesandshallbesubjecttosuchdirectionsasmaybegrantedorimposedfromtimetotimebytheBoardofDirectors.Section4.8.Secretary.(a)TheSecretaryshallkeeporcausetobekeptinoneormorebooksprovidedforthatpurpose,theminutesofallmeetingsoftheBoard,thecommitteesoftheBoardandtheshareholders;theSecretaryshallseethatallnoticesaredulygiveninaccordancewiththeprovisionsoftheseBy-Lawsandasrequiredbylaw;shallbecustodianoftherecordsandthesealoftheCorporationandaffixandattestthesealtoallstockcertificatesoftheCorporation(unlessthesealoftheCorporationonsuchcertificatesshallbeafacsimile,ashereinafterprovided)andaffixandattestthesealtoallotherdocumentstobeexecutedonbehalfoftheCorporationunderitsseal;andshallseethatthebooks,reports,statements,certificatesandotherdocumentsandrecordsrequiredbylawtobekeptandfiledareproperly:keptandfiled;andingeneral,shallperformallthedutiesincidenttotheofficeofSecretaryandsuchotherdutiesasfromtimetotimemaybeassignedtothetSecretarybytheBoard.(b)AssistantSecretariesshallhavesuchoftheauthorityandperformsuchofthedutiesoftheSecretaryasmaybeprovidedintheseBy-LawsorassignedtothembytheBoardofDirectorsorbytheSecretary.DuringtheSecretary'sabsenceorinability,theSecretary'sauthorityanddutiesshallbepossessedbysuchAssistantSecretaiyorAssistantSecretariesastheBoardofDirectorsmaydesignate.Section4.9.Removal.Anyofficerelected,oragentappointed,bytheBoardofDirectorsmayberemovedbytheaffirmativevoteofamajorityoftheWholeBoardwhenever,intheirjudgment,thebestinterestsoftheCorporationwouldbeservedthereby,exceptthattheofficerselectedascontemplatedbySection4.11mayberemovedfromtheofficesspecifiedthereinduringthetermsspecifiedthereinonlybythevoteoftwo-thirdsoftheWholeBoard.NoelectedofficershallhaveanyconuactualrightsagainsttheCorporationforcompensationbyvirtueofsuchelectionbeyondthedateof.theelectionofsuchperson'ssuccessor,suchperson'death,suchperson'sresignationorsuchperson'sremoval,whichevereventshallfirstoccur,exceptasotherwiseprovidedinanemploymentcontractorunderanemployeedeferredcompensationplan.Section4.10.Vacancies.Anewlycreatedelectedofficeandavacancyinanyelectedofficebecauseofdeath,resignation,orremovalmaybefilledbytheBoardofDirectorsfortheunexpiredportionofthetermatanymeetingoftheBoardofDirectors..Section4.11.CertainOfficers.Notwithstandinganyprovisionhereintothecontrary,effectiveasof[thefirstanniversaryoftheEffectiveTime],Dr.WilliamI.'CatacosinosshallbeelectedChairmanoftheBoardofDirectorsandChairmanoftheExecutiveCommitteeof'theBoardofDirectorsandMr.RobertB.CatellshallbeelectedChiefExecutiveOfficeroftheCorporation,ineachcase,foratermendingattheregularmeetingofttheBoardofDirectorsheldafterthe[next]annualmeetingofshareholders.ThisSection4.11maybemodifiedonlybytheaffirmativevoteoftwo-thirdsoftheWholeBoard.H-7 ARTICLEV>>~STOCKCERTIFICATES'ANDTRANSFERS'ection5.1.Stock,CertificatesandTransfers.TheinterestofeachshareholderoftheCorporationshallbe,evidencedbycertificates'orsharesof,stockinsuchformastheappropriate,officersoftheCorporationmayfromtime,totimeptescribe.Theshares,ofthestockof.theCorporationshallbetransferredonthe,booksof.theCorporationbytheholderthereofinpersonorbysuchperson'sattorney,uponsurrenderforcancellationofcertificatesforatleastthesamenumberofshares,withanassignmentandpoweroftransferendorsedthereonorattachedthereto,dulyexecuted,withsuchproofoftheauthenticityofthesignatureastheCorporationoritsagentsmayreasonablyrequire.Thecertificates,of.stockshallbesigned,countersignedandregisteredinsuchmannerastheBoardof,Directorsmayby,resolutionprescribe,whichresolutionmaypermitalloranyofthesignaturesonsuchcertIficatestobeinfacsimile.Incaseanyoffic'ei,transferagentorregistrarwhohassignedorwhosefacsimilesignaturehasbeen,',placeduponacertificatehasceasedtobesuchofficer,'transferagentorregistrar,beforesuchcertificateisissued,itmaybeissuedbytheCorporationwiththesameeffectasifheweresuchofficer,transferagentorregistraratthedateofissue.Section5.2.>>Lost,StolenorDestroyedCertificates,Nocertificate-forsharesofstockintheCorporationshallbeissuedinplaceofanycertificateallegedtohavebeenlost,destroyedorstolen,exceptonproductionofsuchevidenceofsuchloss,'""destructionortheftandondeliverytothe'Corporation-ofabondofindemnityih'sucli'amount,uponsuchtermsandsecuredbysuch"surety,astheBoardofDirectors'oranyfinancialofficei-'mayin.its'o'r'uchperson'sdiscretionrequire."IIIW'>>.*'.~ww'-ARTICLEVIMISCELLANEOUSPROVISIONS:ISection6.1.FiscalYear.[ThefiscalyearoftheCorporationshallbeginonthefirstdayofJanuaryandendonthethirty-first,dayofDecemberofeachyear.]t>>Ir,,Section6.2.,Dividends.TheBoardofDirectorsmayfromtimetotimedeclar'e,andtheCorporationmaypay,dividendsonitsoutsta'ndingsharesinthemanneranduponthetermsandconditions,providedbylawandtheCertificateofIncorporation.Section'6,3;Seal;fhecorporateseal'shallhaveinscribedthereonthewords"CorporateSeal,"theyearofincorporationandaroundthemargin'thereofthewords"NewYork',.rWI'IrWI*WIIWSection6.4,w>>Waiver,of;Notice.Wheneverany'oticeisrequiredtobegiventoany,shareholderorDirectorof;theCorporationunder;theprovisions,oftheNYBCLortheseBy-Laws,awaiverthereofinwriting,signedby;thepersonorpersonsentitledtosuchnotice,,whetherbeforeorafterthetimestatedtherein,shallbedeemedequivalenttothegiving',ofsuchnotice.Neitherthebusinesstobetransactedat,northepurposeof,anyannualorspecialmeetingofthe.shareholders,ortheBoardofDirectorsorcommitteethereofneedbespecifiedinanywaiverofnoticeofsuchmeeting.Section6.5."Audits,"*Theaccourits,'booksandrecordsofthe'.Corpora'tion'hallbe'auditedu'ponthecon'clusio'nrofeachfiscalyearbyanindependentcertifiedpublicacc'oun'tantselectedbythe,BoardofDirectors,andit"shallbethedutyoftheBoardofDirectorstocausesuchaudittobedoneannualfy.'vSection6,6.,Resignations.AnyDirectororanyofficerqwhetherelectedorappointed,mayresignatanytimebygivingwrittenrioticeof.suchresignation'to>theChairman'oftheBoard,theChiefExecutive.Officer,thePresidentortheSecretary,andsuchresignationshallbedeemedtobeeffectiveasoftheclose'of.businessonthedatesaidnoticeisreceived.bythe..Chairman,oftheBoard;theChiefExecutive,Officer,thePresidentortheSecretary,oratsuchlatertimeasis.specifiedtherein.No'formalactionshallberequiredoftheBoardofDirectorsortheshareholderstomakeanysuchresignationeffective.H-8 ARTICLEVIICONTRACTS,PROXIES,ETC.Section7.1.Contracts.Exceptasotherwiserequiredbylaw,theCertificateofIncorporation,aPreferredStockDesignation,ortheseBy-Laws,anycontractsorotherinstrumentsmaybeexecutedanddeliveredinthenameandonthebehalfoftheCorporationbysuchofficerorofficersoftheCorporationastheBoardofDirectorsmayfromtimetotimedirect.SuchauthoritymaybegeneralorconfinedtospecificinstancesastheBoardmaydetermine.TheChairmanoftheBoard,theChiefExecutiveOfficer,thePresidentoranySeniorVicePresident,ExecutiveVicePresidentorVicePresidentmayexecutebonds,contracts,deeds,leasesandotherinstrumentstobemadeorexecutedfororonbehalfoftheCorporation.SubjecttoanyrestrictionsimposedbytheBoardofDirectors,theChiefExecutiveOfficer,thePresidentoranySeniorVicePresident,ExecutiveVicePresidentorVicePresidentoftheCorporationmaydelegatecontractualpowerstoothersundersuchperson'jurisdiction,itbeingunderstood,however,thatanysuchdelegationofpowershallnotrelievesuchofficerofresponsibilitywithrespecttotheexerciseofsuchdelegatedpower.Section7.2,Proxies.UnlessotherwiseprovidedbyresolutionadoptedbytheBoardofDirectors,theChairmanoftheBoard,theChiefExecutiveOfficer,thePresidentoranySeniorVicePresident,ExecutiveVicePresidentorVicePresidentmayfromtimetotimeappointanattorneyorattorneysoragentoragentsoftheCorporation,inthenameandonbehalfoftheCorporation,tocastthevoteswhichtheCorporationmaybeentitledtocastastheholderofstockorothersecuritiesinanyothercorporation,anyofwhosestockorothersecuritiesmaybeheldbytheCorporation,atmeetingsoftheholdersofthestockorothersecuritiesofsuchothercorporation,ortoconsentinwriting,inthenameoftheCorporationassuchholder,toanyactionbysuchothercorporation,andmayinstructthepersonorpersonspoappointedastothemannerofcastingsuchvotesorgivingsuchconsent,andmayexecuteorcau'setobeexecutedinth'enameandonbehalfoftheCorporationandunderitscorporatesealorotherwise,allsuchwrittenproxiesorotherinstrumentsashemaydeemnecessaryorproperinthepremises.ARTICLEVIIIAMENDMENTSSection8.1.Amendments.Exceptasotherwisespecifiedherein,theBy-LawsmaybealteredorrepealedandnewBy-Lawsmaybeadopted(1)atanyannualorspecialmeetingofshareholdersbytheaffirmativevoteoftheholdersofamajorityofthevotingpowerofthestockissuedandoutstandingandentitledtovotethereat,provided,however,thatanyproposedalterationorrepealof,ortheadoptionofanyBy-Lawinconsistentwith,Section2.2,2.7or2.10ofArticleIIorSection3.9or3.11ofArticleIIIoftheBy-Lawsbytheshareholdersshallrequiretheaffirmativevoteoftheholdersofatleast80%ofthevotingpowerofallVotingStockthenoutstanding,votingtogetherasasingleclass,andprovided,further,however,that,inthecaseofanysuchshareholderactionataspecialmeetingofshareholders,noticeoftheproposedalteration,repealoradoptionofthenewBy-LaworBy-Lawsmustbecontainedinthenoticeofsuchspecialmeeting,or(2)bytheaffirmativevoteofamajorityoftheWholeBoard.H-9
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AnnexISECTION623ANDSECTION910OFTHENEWYORKBUSINESSCORPORATIONLAW5623.Proceduretoenforce,shareholder'srighttoreceivepaymentforshares(a)Ashareholderintendingtoenforcehisrightunderasectionofthischaptertoreceivepaymentforhissharesiftheproposedcorporateactionreferredtothereinistakenshallfilewiththecorporation,beforethemeetingofshareholdersatwhichtheactionissubmittedtoavote,oratsuchmeetingbutbeforethevote,writtenobjectiontotheaction.Theobjectionshallincludeanoticeofhiselectiontodissent,hisnameandresidenceaddress,thenlimberandclassesofsharesastowhichhedissentsandademandforpaymentofthefairvalueofhissharesiftheactionistaken.Suchobjectionis"notreq'uiredfromanyshareholdertowhomthecorporationdidnotgivenoticeofsuchmeetinginaccordancewiththischapterorw'heretheproposedactionisauthorizedbywrittenconsentofshareholderswithoutameeting.(b)Withintendaysaftertheshareholders'uthorizationdate,whichtermasusedinthissectionmeansthedateonwhichtheshareholders'oteauthorizingsuchactionwastaken,orthedateonwhichsuchconsentwithoutameetingwasobtainedfromtherequisiteshareholders,thecorporationshallgivewrittennoticeofsuchauthorizationorconsentbyregisteredmailtoeachshareholderwhofiledwrittenobjectionorfromwhomwrittenobjectionwasnotrequiied,exceptinganyshareholderwhovotedfororconsentedinwritingtotheproposedactionandwhotherebyisdeemedtohayeelectednottoenforcehisrighttoreceivepaymentforhisshares.(c)Withintwentydaysafterthegivingofnoticetohim,anyshareholderfromwhomwrittenobjectionwasnotrequiredandwhoelectstodissentshallfile.withthecorporationawrittennoticeofsuchelection,statinghisnameandresidenceaddress,thenumberandclassesofsharesastowhichhedissentsandademandforpaymentofthefairvalueofhissha'res.Anyshareholderwhoelectstodissentfromamergerundersection905(Mergerofsubsidiarycorporation)orparagraph(c)ofsection907(Mergerorconsolidationofdomesticandforeigncorporations)orfromashareexchangeunderparagraph(g)ofsection913(Shareexchanges)shallfileawrittenoticeofsuchelection'o,dissentwithintwentydaysafterthegivingtohimofacopyoftheplanofmergerorxchangeoranoutlineofthematerialfeaturesthereofundersection905or913.(d)Ashareholdermaynotdissentastolessthanallof'theshares,astowhichhehasarighttodissent,heldbyhimofrecord,thatheownsbeneficially.Anomineeorfiduciarymaynotdissentonbehalfofanybeneficialownerastolessthanallofthesharesofsuchowner,astowhichsuchnomineeorfiduciaryhasarighttodissent,heldofrecordby'suchnomineeorfiduciary.(e)Uponconsummation,,pfthecorporateaction,theshareholdershallceasetohaveanyoftherightsofashareholderexcepttherighttobepaidthefairvalueofhissharesandanyotherrightsunderthissection.Anoticeofelectionmaybe,withdrawnbytheshareholderatanytimepriortohisacceptanceinwritingofanoffermadebythecorporation,asprovidedinparagraph(g),but,innocaselaterthansixtydaysfromthedateofconsummationofthecorporateactionexceptthatifthecorporationfailstomakeatimelyoffer,asprovidedinparagraph(g),thetimefor,withdrawinganoticeofelectionshallbeextendeduntilsixtydaysfromthedateanofferismade.Uponexpiratiopofsuchtime,withdrawalofanoticeofelectionshallrequirethewrittenconsentofthecorporation.Inordertobeeffective,withdrawalofanoticeofelectionmustbeaccompaniedbythereturntothecorporationofanyadvance.paymentmadetotheshareholderasprovidedinparagraph(g).Ifanoticeofelectioniswithdrawn,orthecorporateactionisrescinded,oracourtshalldeterminethattheshareholderisnotentitled'toreceivepaymentforhisshares,ortheshareholdershallotherwiselosehisdissenter'srights,heshallnothavetherighttoreceivepaymentforhissharesandheshallbereinstatedtoallhisrightsasashareholderasoftheconsummationofthecorporateaction,includinganyinterveningpreemptiverightsand'therighttopaymentofanyinterveningdividendorotherdistributionor,ifanysuchrightshaveexpiredoranysuchdividendordistributionotherthanincashhasbeencompleted,inlieuthereof,attheelectionofthecorporation,thefairvaluethereofincashasdeterminedbytheboardasofthetimeofsuchexpirationorcompletion,butwithoutprejudiceotherwisetoanycorporateproceedingsthatmayhavebeentakenintheinterim.(f)Atthetimeoffilingthenoticeofelectiontodissentorwithinonemonththereaftertheshareholderofharesrepresentedbycertificatesshallsubmitthecertificatesrepresentinghissharestothecorporation,ortoits transferagent,whichshallforthwithnoteconspicuouslythereonthatanoticeofelectionhasbeenfiledandshalreturnthecertificatestotheshareholder,orotherpersonwho,submittedthem.onhisbehalf.Anyshareholderofsharesrepresentedbycertificateswhofailstosubmithiscertificatesfor.suchnotationashereinspecifiedshall,attheoptionofthecorporationexercisedbywrittennoticetohimwithinforty-fivedaysfromthedateoffilingofsuchnoticeofelectiontodissent,losehisdissenter'srightsunlessacourt,forgoodcauseshown,shallotherwisedirect.Upontransferofacertificatebearingsuchnotation,eachnewcertificateissuedthereforshallbearasimilarnotationtogetherwiththenameoftheoriginaldissentingholderofthesharesandatransfereeshallacquirenorightsinthecorporationexcept'hosewhichtheoriginaldissentingshareholderhadatthetimeoftransfer.~(g)Withinfifteendaysaftertheexpirationof,theperiodwithinwhichshareholdersmayfiletheirnoticesofelectiontodissent,orwithinfifteendaysaftertheproposedcorporateactionisconsummated,whicheverislater(butinnocaselaterthanninetydaysfromtheshareholders'uthorizationdate),thecorporationor,inthecaseofamergerorconsolidation,thesurvivingornewcorporation,shall,makeawrittenofferbyregisteredmailtoeachshareholderwhohasfiledsuchnoticeofelectiontopayforhissharesataspecifiedpricewhichthecorporationconsiderstobetheirfairvalue.Suchoffershallbeaccompaniedbya'statement'ettingforththeaggregatenumberofshareswithrespecttowhichnoticesofelectiontodissenthavebeenreceivedandtheaggregatenumberofholdersofsuchshares.Ifthecorporateactionhasbeenconsummated,suchoffershallalsobeaccompaniedby(1)advancepaymenttoeachsuchshareholderwhohassubmittedthecertificatesrepresentinghissharestothecorporation,asprovidedinparagraph(f),ofanamountequaltoeightypeicentoftheamountofsuchoffer,or(2)astoeachshareholderwhohasnot'etsubmittedhiscertificatesastatementthatadvancepaymenttohimofanamountequaltoeightypercentof-theamountofsuchofferwillbe,madebythecorporationpromptlyuponsubmissionofhiscertificates.Ifthecorporateactionhasnotbeenconsummatedatthetimeofthemakingoftheoffer,suchadvancepaymentorstatementastoadvancepaymentshallbesenttoeachshareholderentitledtheretoforthwithuponconsummationofthecorporateaction.Everyadvance.paymentorstatementastoadvancepaymentshallincludeadvicetotheshareholdertotheeffectthatacceptanceofsuchpaymentdoesnotconstituteawaiverofanydissenters'ights.Ifthecorporateactionhasnotbeenconsummatedupontheexpirationoftheninetydayperiodaftertheshareholders'uthorizationdate,theoffermay-bconditionedupontheconsummationofsuchaction.Suchoffershallbemadeatthesamepricepersharetoaldissentingshareholdersofthesameclass,orifdividedintoseries,ofthesameseriesandshallbeaccompaniedbyabalancesheetofthecorporationwhosesharesthedissentingshareholderholdsasofthelatestavailabledate,whichshallnotbeearlierthantwelvemonthsbeforethemakingofsuchoffer,andaprofitandlossstatementorstatementsfornotJessthanatwelvemonthperiodendedonthedateofsuchbalancesheetor,ifthecorporationwasnotinexistencethroughoutsuchtwelvemonthperiod,fortheportionthereofduringwhichitwasinexistence.Notwithstandingtheforegoing,thecorporationshallnotberequiredtofurnishabalancesheetorprofitandlossstatementorstatementstoanyshareholdertowhomsuchbalancesheetorprofitandlossstatementorstatementswerepreviouslyfurnished,norifinconnectionwithobtainingtheshareholders'uthorizationfororconsenttotheproposedcorporateactiontheshareholderswerefurnishedwithaproxyorinformationstatement,whichincludedfinancialstatements,pursuanttoRegulation14A"or"Regulation14CoftheUnitedStatesSecuritiesandExchangeCommission.Ifwithinthirtydaysafterthemakingofsuchoffer,thecorporationmakingtheofferandanyshareholderagreeuponthepricetobe'paidforhisshares,paymentthereforshallbemadewithinsixtydaysafterthemakingofsuchofferortheconsummationoftheproposedcorporateaction,whicheverislater,uponthesurrenderofthecertificatesforanysuchsharesrepresentedbycertificates.(h)Thefollowingprocedureshallapplyifthecorporationfailstomakesuchofferwithinsuchperiodoffifteendays,orifitmakestheofferandanydissentingshareholderorshareholdersfailtoagreewithitwithintheperiodofthirtydaysthereafteruponthepricetobepaidfortheirshares:(1)Thecorporationshall,withintwentydaysaftertheexpirationofwhicheverisapplicableofthetwoperiodslastmentioned,instituteaspecialproceedinginthesupremecourtinthejudicialdistrictinwhichtheofficeofthecorporationislocatedtodeterminetherightsofdissentingshareholdersandtofixthefairvalueoftheirshares.If,inthecaseofmergerorconsolidation,the'survivingornewcorporationisaforeigncorporationwithoutanofficeinthisstate,suchproceedingshallbebroughtinthecountywheretheofficofthedomesticcorporation,whosesharesaretobe'valued,waslocated.I-2 t(2)Ifthecorporationfailstoinstitutesuchproceedingwithinsuchperiodoftwentydays,any~dissentingshareholdermayinstitutesuchproceedingforthesamepurposenotlaterthanthirtydaysaftertheexpirationofsuchtwentydayperiod.Ifsuchproceedingisnotinstitutedwithinsuchthirtydayperiod,alldissenter'srightsshallbelostunlessthesupremecourt,forgoodcauseshown,shallotherwisedirect.(3)Alldissentingshareholders,exceptingthosewho,asprovidedinparagraph(g),haveagreedwiththecorporationupon,thepricetobepaidfortheirshares,shallbemadepartiestosuchproceeding,whichshallhavetheeffectofanactionquasiinremagainsttheirshares.Thecorporationshallserveacopyofthepetitioninsuchproceedinguponeachdissentingshareholderwhoisaresidentofthisstateinthemannerprovidedbylawfortheserviceofasummons,anduponeachnonresidentdissentingshareholdereith'erbyregisteredmailandpublication,orinsuchother'mannerasispermittedbylaw.Thejurisdictionofthecourtshallbeplenaryandexclusive.(4)Thecourtshalldeterminewhethereachdissentingshareholder,astowhomthecorporatiOnrequeststhecourttomakesuchdetermination,isentitledtoreceivepaymentforhisshares.Ifthecorporationdoesnotrequestanysuchdeterminationorifthecourtfindsthatanydissentingshareholderissoentitled,itshallproceedtofixthe'alueoftheshares,which,forthepurposesofthissection,shallbe"thefairvalueasofthecloseofbusinessonthedaypriortotheshareholders'uthorizationdate.Infixingthefairvalueoftheshares,thecourtshallconsiderthenatureofthetransactiongivingrisetotheshareholder'srighttoreceivepaymentforsharesandits,effectsonthecorporationanditsshareholders,theconceptsandmethodsthencustomaryiti.therelevantsecuritiesandfinancialmarketsfordeterminingfairvalueofsharesofacorporation,engaginginasimilartransactionundercomparablecircumstancesandallotherrelevantfactors.Thecourtshalldeterminethefairvalueoftheshareswithoutajuryandwithoutreferraltoanappraiserorreferee.Uponapplicationbythecorporationorby.anyshareholderwhoisapartytotheproceeding,thecourtmay,initsdiscretion,permitpretrialdisclosure,including,butnotlimitedto,disclosureofany*expert'sreportsrelatingtothefairvalueoftheshareswhetherornot.,intendedforuseatthetrialinthelproceedingandnotwithstandingsubdivision(d)ofsection3101.ofthecivilpracticelawandrules.(5)Thefinalorderintheproceedingshallbeenteredagainstthecorporationinfavorofeachdissentingshareholderwhoisapartytotheproceedingandisentitledtheretoforthevalueofhissharessodetermined(6)Thefinalordershallinclude,anallowanceforinterestat,suchrateasthecourtfindstobeequitable,fromthedatethecorporateactionwasconsummatedtothedateofpayment.Indeterminingtherateofinterest,thecourtshallconsiderallrelevantfactors,includingtherateofinterestwhichthecorporationwouldhavehadtopaytoborrowmoneyduringthependencyoftheproceeding.Ifthecourtfindsthattherefusalofanyshareholdertoacceptthecorporateofferofpaymentforhisshareswasarbitraryvexatiousorotherwisenotingoodfaith,nointerestshallbeallowedtohim.(7)Eachpartytosuchproceedingshallbearitsowncostsandexpenses,includingthefeesandexpensesofitscounselandofanyexpertsemployedbyit.Notwithstandingtheforegoing,thecourtmay,initsdiscretion,apportionandassessalloranypartofthecosts,expensesandfeesincurredbythe'corporationagainstanyorallofthedissentingshareholderswhoarepartiestotheproceeding,includinganywhohavewithdrawn'theirnotices'ofelectionasprovidedinparagraph(e),ifthecourtfindsthattheirrefusaltoacceptthecorporateofferwasarbitrary,vexatiousorotherwisenotingoodfaith.Thecourtmay,initsdiscretion,appottionandassessalloranypartofthecosts,expensesandfeesincurredbyanyorallofthedissentingshareholderswhoarepartiestotheproceedingagainstthecorporationifthecourt,findsanyofthefollowing:(A)thatthefairvalueofthesharesasdeterminedmateriallyexceedstheamountwhichthecorporationofferedtopay;(B)thatnoofferorrequiredadvancepaymentwasmadebythecorporation;(C)thatthecorporationfailedtoinstitutethespecialproceedingwithintheperiodspecifiedtherefor;or(D)thattheactionofthecorporationincomplyingwithitsobligationsasprovidedinthissectionwasarbitrary,vexatiousorotherwisenotingoodfaith.Inmakinganydeterminationasprovidedinclause(A),thecourtmayconsiderthedollaramountorthepercentage,orboth,bywhichthefairvalueofthesharesasdeterminedexceedsthecorporateoffer.I-3 (8)Withinsixtydaysafterfinaldeterminationoftheproceeding,thecorporationshallpaytoeacdissenting,shareholdertheamountfoundtobeduehim,uponsurrenderofthecertificatesforanysuchsharesrepresentedbycertificates.(i)Sharesacquiredbythecorporationuponthepaymentoftheagreedvaluetherefororoftheamountdueunderthefinalorder,asprovidedinthissection,shallbecometreasurysharesorbecancelledasprovidedinsection515(Reacquiredshares),exceptthat,inthecaseofamergerorconsolidation,theymaybeheldanddisposedofastheplanofmergerorconsolidationmayotherwiseprovide.(j)Nopaymentshallbemadetoadissentingshareholderunderthissectionatatimewhenthecorporationisinsolventorwhensuchpaymentwouldmakeitinsolvent.Insuchevent,thedissentingshareholdershall,athisoption:(1)Withdrawhisnoticeofelection,whichshallinsucheventbedeemedwithdrawnwiththewritten,consentofthecorporation;or(2)Retainhisstatusasaclaimantagainstthecorporationand,ifitisliquidated,besubordinatedtotherightsofcreditorsofthecorporation,buthaverightssuperiortothenon-dissentingshareholders,andifitisnotliquidated;retainhis,righttobepaidforhisshares,whichrightthecorporationshallbeobligedtosatisfy,whentherestrictionsofthisparagraphdonotapply.(3)Thedissentingshareholdershallexercisesuchoptionundersubparagraph'1)or(2)bywrittennoticefiledwiththecorporationwithinthirtydaysafterthecorporationhasgivenhimwrittennoticethatpaymentforhissharescannotbemadebecauseoftherestrictionsofthisparagraph.Ifthedissentingshareholderfailstoexercisesuchoptionasprovided,thecorporationshallexercisetheoptionbywrittennoticegiventohimwithintwentydaysaftertheexpirationofsuchperiodofthirtydays.-r(k)Theenforcementbyashareholderofhisrighttoreceivepaymentforhissharesinthemannerprovidedhereinshallexcludetheenforcementbysuchshareholderofanyotherrighttowhichhemightotherwisebentitledbyvirtueofshareownership,exceptasprovidedinparagraph(e),andexceptthatthissectionshallnexcludetherightofsuchshareholdertobringormaintainanappropriateactiontoobtainreliefonthegrounthatsuchcorporateactionwillbeorisunlawfulorfraudulentastohim.(1)Exceptasotherwiseexpresslyprovidedinthissection,anynoticetobegivenbyacorporationtoashareholderunderthissectionshallbegiveninthemannerprovidedinsection'605(Noticeofmeetingsofsh'areholders).(m)Thissectionshallnotapplytoforeigncorporationsexceptasprovidedinsubparagraph(e)(2)ofsection907(Mergerorconsolidationofdomesticandforeigncorporations).g910.Rightofshareholdertoreceivepaymentforsharesuponmergerorconsolidation,orsale,lcasc,exchangeorotherdispositionofassets,orshareexchange(a)Ashareholderofadomesticcorporationshall,subjecttoandbycomplyingwithsection623(Proceduretoenforceshareholder'srighttoreceivepaymentforshares),havetherighttoreceivepaymentofthefairvalueofhissharesandtheotherrightsandbenefitsprovidedbysuchsection,inthefollowingcases:(1)Anyshareholderentitledtovotewhodoesnotassenttothetakingofanactionspecifiedinsubparagraphs(A),(B)and(C).(A)Anyplanofmergerorconsolidationtowhichthecorporationisaparty;exceptthattherighttoreceivepaymentofthefairvalueofhissharesshallnotbeavailable:(i)Toashareholderoftheparentcorporationinamergerauthorizedbysection905(Mergerofparentandsubsidiarycorporations),orparagraph(c)ofsection907(Mergerorconsolidationdomesticandforeigncorporations);andI-4 e(ii)Toashareholderofthesurvivingcorporationinamergerauthorizedbythisarticle,otherthanamergerspecifiedinsubparagraph(i),unlesssuchmergereffectsoneormoreofthechangesspecifiedinsubparagraph(b)(6)ofsection806(Provisionsastocertainproceedings)intherightsofthesharesheldbysuchshareholder.(B)Anysale,lease,exchangeorotherdispositionofallorsubstantiallyalloftheassetsofacorporationwhichrequiresshareholderapprovalundersection909(Sale,lease,exchangeorotherdispositionofassets)otherthanatransactionwhollyforcashwheretheshareholders'pprovalthereofisconditioneduponthedissolutionofthecorporationandthedistributionofsubstantiallyallofitsnetassetstotheshareholdersinaccordancewiththeirrespectiveinterestswithinoneyearafterthedateofsuchtransaction.(C)Anyshareexchangeauthorizedbysection913inwhichthecorporationisparticipatingasasubjectcorporation;exceptthattherighttoreceivepaymentofthefairvalueofhissharesshallnotbeavailabletoashareholderwhoseshareshavenotbeenacquiredintheexchange.(2)Anyshareholderofthesubsidiarycorporationinamergerauthorizedbysection905orparagraph(c)ofsection907,orinashareexchangeauthorizedbyparagraph(g)ofsection913,whofileswiththecorporationawrittennoticeofelectiontodissentasprovidedinparagraph(c)ofsection623.
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t,,;piiiz,..-,'.:,ANNEXJ:"QUESTIONSANDANSWERSANDSUMMARYABOUTBROOKLYNUNION'S,*HOLDINGCOMPANYPROPOSALANDTHEKEYSPAN/HAREEXCHANGE",,ThisAnnexJdescribestheiBrooklyn'niohholdingcompanyprop'osalanddiscussestheepee'ts'oftheKeySpan'hare'exchange.Foradescriptioti'ofiheproposedL'ILCO'Combination,the'IPATr'ansactionandtheirepee'ts,seethe"JointProxyStatement/Prospectus.Ig",ThefollowingQuestionsandAnswersandSununaryhighlightselectedinformatiohionProposa22atourSpecialMeetingregardingBrooklynUnion'sholdingcompanyproposalaiidtheKeySpans1iareex'change,andmaynotcontainall,oftheinformationthatisimportanttoyou.ForamorecompletediscussioiiofBrooklynUnioti'sholding'ompany,proposalandthe,KeySpansliareexchang'e,youshouldreadcarefullythiseiitiredocumentantitheattachedannexesandthe,documentsreferredtoyou'Forexample,'tluteAmendedandRestatedAgreeinentandPlanofExchangeattachedtothisJointProxyStatement/ProspectitsasAiinexKprovidesfor,theKeySpanshare,exchange,andgeySpan'srestate'dcertificate'ofincorporation'andby-la>vs'AnnexL)setout,amongothertliings,provjsionsgoverningcertainrights'ofKeySpan'sshareholrlers.TheinformationinAnnexJshouldalsobereviewed.in,conjunctionwiththeinforntatiotiprovidedelsewhereinthisJointProxyStatement/ProspectusasitrelatestotheLILCOCombinationandLIPATransactionsiircethosetransactioris,.andtheagreementsgoverningthemwillaccttherightsofBrooklynUnion'sandKeySpan'sshareholders.Seealso"WhereYouCanFindMoreInformation"ionpage,110of,thisJointProxyStateinent/Prospectus.'"1.'hatis'BrooklynUnion'sholdiiigcompanyentities.,We,alsobelievethat,aholdingcompany'proposal?)Vhy,'t'sitbeiiig'proposed?structureshouldprovidegreateropportunitiesforBrooklynUnioni~proposingtoestablishagrowthandenhancedvalues,greaterflexibilityinholdingcompanystructurethrougha,shatedevelopingnewbusinesses,andgreaterflexibilityexchange,withthenewholdingcompanyregardingthetiming,methodandamountof~~,,beingcalledKeySpanEnergyCorporation.financings'and'acquisitions,throughthe",After,theshareexchange,BrooklynUniondiscernibleseparation'betwee'nour'u'tilityandwillcontinuetooperateitspresentutilitynon-utilitybusinessesandrelaxed"constraintson,businessasasubsidiaryofKeySpan,anditisunregulatedactivities.r;intendedthatcertain,ifnotall,ofBrooklyn,Union'syon-utilitysubsidiarieswilleventuallyItisimpossibleforustop'redictwith'c'eitaintybecomeseparatedirectsubsidiariesofwhenthebusinesscombinationwithLII.COwill,KeySpan..New,non-utilitysubsidiariesalsobeconsummated."By"p'roceedingwiththewillbesetupasseparatedirectsubsidiariesofKeySpanrestructuring'atthi'stimeBrooklynKeySpan.'nionwillhaveadditionalflexibilitytomakeinvestm'entsinunregulatedbusinesseswhetherorWeareveryenthusiasticaboutourholdingnottheLILCOtransactionisconsummated.companyproposal.WebelieveitwillgiveusBrookfynUnion'sabilitytomakefurther'hefinancialanti'regulatoryflexibilitytoinvestmentsinunregulatedbusinessesis'ompetemoreeffectivelyintheincre'asihglyrestrictedbyaPSCorderandissubjecttocertaincompetitiveenergyindustryby'relaxingrestrictionsiinderitsdgreementwithLILCO."constraintsimposedbytheNewYorkPublicServiceCommission("PSC")onincrementalYourBoardofDirectorshasunanimouslyinvestments'riunregulatedoperations,'annualapprovedourholdingcompanyproposalandthe"-inv'estments,"amountsinvestedin'anysingleshareexchange'andbelievestheiradoptionisinlineofbusiness,andfinancial'ratiosof'hebestinterestsofBrooklynUnionanditssubsidiaries.Relaxingconstraints'andshareholders.Your'Boardrecommendsthateliminatingtime-lagsassociatedwithyoii'vote'"IVOR"thatproposalandadoption'egulatory"decisi6nsshouldallow'ore'rapidoftheAmendedandRestated'AgreementandmovesinanindustrywherecompetitorsdoPlanofExchangeatthe'BrooklynUnionnothhvethesameconstraintsasregulatedMeeting."vv WhattypeofbusinesseswillKeySpanengagein?InadditiontobecomingtheparentholdingcompanyofBrooklyn,Unionandallnoir-utilitysubsidiarieswecreateinthefuture,itisourintentionthatKeySpaneventuallywillowndirectlycertain,ifnotall,ofourprincipalinvestmentsinexistingnon-utilitybusinesses.Thesecurrentlyincludegasandoilexplorationandproduction,gaspipelinetransportationandstorage,cogeneration,marketingandotherenergy-relatedservices.KeySpanwillalsobeabletoinvestdirectlyincertainotherbusinessesandventuresthatshouldstrengthenourabilitytoprovidetotalenergyservicesinanincreasinglycompetitivemarketplace.TheprincipalexecutiveofficesofBrooklyn'nionarelocatedatOneMetroTechCenter,Brooklyn,NewYork11201-3850,anditstelephonenumberis(718)403-2000.KeySpan'sprincipalexecutiveofficesareatthesameaddress;itstelephonenumberis(718)403-1000.IIIHowdoestherestructuringaffecttheproposedbusinesscombinationwithLILCO?JheKeySpanrestructuringandtheLILCOCombinationarenotconditionedononeanother.IfBrooklynUnion'sshareholdersapprovetheJroldingcompanyyroposal,wewillproceedwiththerestructuringregardlessofwhethertheLILCOCombinationisapprovedorconsummated.IfBrooklynUnion'sshareholdersapprovebothproposals,weintendtoproceedwiththerestructuringfirstandhaveKeySpanassumeBrooklynUnion'srightsandobligations,underthe,BrooklynUnion/LILCOAgreementwithLILCO.Inthatcase,KeySpaneffectivelywillbe.replacingBrooklynUnionastheentitythatwillengageinashareexchangewithBLHoldingCorp.("BL"),theholdingcompanyforbothBrooklynUnionandLILCO.OnceBrooklynUnionandthenon-utilitysubsidiariesbecomeindirectsubsidiariesofBLweexpecttoeventuallydissolveKeySpanasalegalentitysothattherewouldonlybeoneholdingcompanyforBrooklynUnion,thenon-utilitysubsidiariesandLILCO.Ineffect,consummatingtheLILCOCombinationaswedescribedintheJoint.ProxyStatement/ProspectuswillalsoenableBrooklynUniontoputitselfinaholdingcompanystructure.ShareholderapprovaloftheKeySpanholdingcompanyproposal,however,willallowustotakeadvantageoftheholdingcompanystructurepriortotheclosingoftheLILCOCombination.ThisAnnexJgenerallydiscussesthereasonsforandeffectsoftheKeySpanrestructuringseparatefromtheLILCOCombination.ForadiscussionoftheLILCOCombination,the-relatedLIPATransactionandadescriptionofthecombinedentityaftertheLILCOCombination,pleaseseetheJointProxyStatement/Prospectus.WlratistheKeySpanshareexchange?TheKeySpanshareexchangeisthe,meansbywhichourholdingcompanystructurewillbeestablished.IfBrooklynUnion'sshareholdersapproveourholdingcompanyproposalandadopttherelatedAmendedandRestatedAgreementandPlanofExchangeatourSpecialMeeting,BrooklynUnioncommonshareholdersSillautomaticallybecomeholdersofcommonstockofKeySpanonthebasisofoneshareofBrooklynUnionforoneshareofKeySpan.Followirigtheshareexchange,KeySpanwillownallofBrooklynUnion'soutstandingcommonstock,'nditisintendedthatnewnon-utilitysubsidiariesalsowillbeestablishedasseparatedirectsubsidiariesofKeySpanandcertain,ifnotall,ofBrooklynUnion'snon-utilitysubsidiarieseventuallywillbecomeseparatesubsidiariesofKeySpan.FWillIhavetoexchangemyBrooklynUnionstockcertificatesfornewKeySpancertificates?No.YourpresentcertificatesforBrooklynUnioncommonstockwillautomaticallyrepresentanequalnumberofsharesofKeySpancommonstockwhen,theexchangeoccursandwillnolongerrepresentBrooklynUnioncommonstock.~WhenwilltheKeySpanshareexchangeoc-cur'?Weexpecttheexchangetooccurinthethirdquarterofcalendar1997,assumingJ-2 shareholderapprovalattheBrooklynUnionMeeting.Ifapproved,wewillproceedwiththeKeySpanrestructuringregardlessofwhethertheBrooklynUnion/LILCOAgreementwithLILCOisalsoapproved.IVherewillmyKeySpancommonstockbetraded?IVhatwillbethetickersymbol?KeySpancommonstockwillbelistedontheNewYorkStockExchange,andwilltradeunderthetickersymbol."KSE".BrooklynUnion'scommonstockispresentlylistedandprincipallytradedontheNewYorkStockExchange.ThereportedclosingpriceofourcommonstockonJune23,1997was$28'.Aftertheshareexchange,BrooklynUnion'scommonstockwillnolongertradeandwillbedelisted.IVillmydividendsbeaffected?WhilefuturedividendsonKeySpancommonstockwilldependontheearnings,financialconditionandcapitalrequirementsofKeySpanandBrooklynUnionandthedividendsBrooklyn,UnionpaystoKeySpan,weexpecttocontinueBrooklynUnion'spolicyofpayinganappropriatepercentageofearningstoshareholders.Inthefuture,dividendsfromKeySpan'sothersubsidiariesmayalsobeasourceoffundsforKeySpan'sdividendpayments.KeySpanpresentlyexpectstopayquarterlycommonstockdividendsatleastequalto,andonapproximatelythesamescheduleas,thedividendmostrecentlydeclaredonBrooklynUnion'scommonstock.fTheSeptember25,1996NewYorkPublicServiceCommissionorderapprovingourholdingcompanyproposalimposescertainlimitationsondividendsthatBrooklynUnionmaypaytoKeySpanaftertheshareexchange.Generally,BrooklynUnionmaynotpayKeySpanmorethan100%ofincomeavailablefordividends.Undercertaincircumstances,furtherlimitsmaybeplacedupontheamountofdividendsBrooklynUnionmaypaytoKeySpan.'SeepagesJ-15-J-17)10.Thedividendpolicy.for.theHoldingCompanyaftertheLILCOCombinationisdescribedonpages2and63oftheJointProxyStatement/Prospectus.IV/rataretheFederalincometaxconsequencestocommonshareholders?IfashareholderexchangessolelyBrooklyn,UnioncommonstocksolelyforKeySpancommonstock,thatshareholderwillnotrecognizeanygainorlossunderFederalincometaxlaws.(SeepagesJ-17-J-18)IVi/lBrooklynUnionpreferredstockorbondsbeerchanged?BrooklynUnionwillredeemtheoutstandingpreferredstockpriortotheconsummationoftheKeySpanshareexchangeifProposal2isapprovedbyBrooklynUnioncommonshareholdersattheBrooklynUnionMeeting.BrooklynUnion'sbondswillnotchangeandwillcontinuetobeobligationsofBrooklynUnion.(SeepageJ-19)"'V/rowillmanageKeySpan?Anew,BoardofDirectorsofKeySpanwillbeelectedbeforetheKeySpanshareexchangebyBrooklynUnionassoleshareholderofKeySpan.ItwillconsistofanumberofexistingBrooklynUniondirectorsandvacancieswillbefilledinthefuture.CertainexistingofficersofBrooklynUnionwillalsoserveasofficersofKeySpan.RobertB.Catellwillbechairman,presidentandchiefexecutiveofficerandadirectorofKeySpan,andwillcontinueaschairmanandchiefexecutiveofficerandadirectorofBrooklynUnion.TheSeptember25,1996NewYorkPublicServiceCommissionorderapprovingourholdingcompanyproposalcontainscertainrestrictionsonBoardandmanagerialinterlocksbetweenBrooklynUnionandKeySpanandothersubsidiariesofKeySpan.(SeepageJ-30)J-3 1213.14.Howwillmyparticipationirithedividendreinveslmentplanbeaffected?AllsharesofBrooklynUni'oncommonstockheldunderourDividendReinvestmentandStockPurchasePlanwillbeautomaticallyexchangedforsharesofKeySpancommonstock.WewillcontinuetheDividendReinvestmentandStockPurchasePlanwithKeySpancommonstockaftertheshareexchang'e.ForadescriptionoftheeffectsoftheLILCOCom6inationontheseplans,seepageJ-14andpage72ofthe"JointProxyStatement/Prospectus.WhatdoIneedtodonow?Justmailyoursignedproxycardintheenclosedpostage-paidreturnenvelopeassoonaspossible,sothatyoursharesmayberepresentedattheBrooklynUnionMeeting.Themeetingwilltakeplaceat3:00p.ni.onAugust7,1997atOperaHouse,BrooklynAcademyofMusic,30LafayetteAvenue,Brooklyn,NewYork.WhatsliareholdervoteisrequiredforapprovalofourholdingcompanyproposalandlheKeySpanshareexchange?HoldersofrecordofBrooklynUnioncommonstockonJune26,1997areentitledtovoteat'theBrooklynUnionMeeting.Two-thirdsoftheoutstandingsharesofBrooklynUnioncommonstoclemustbevoted"FOR"Proposal2atourSpecialMeetinginordertoapproveourholdingcompanyproposalandtheKeySpanshareexchange.andLong-TermPerformanceIncentiveCompensationPlanwillbeamendedtoprovideforownershipofcommonsharesofKeySpaninsteadof.BrooklynUnioncommonstock,'ndKeySpanwilltakeoverresponsibilityfortheseplans.AllexistingsharesofBrooklynUnioncommonstockheldintheseplans,orsubjecttoplanoptionsorperformanceawards,willautomaticallybecomeanequalnumberofcommonsharesorstockoptionsorperformanceawardsofKeySpan,andKeySpanwillbetheissueroffuturestockoptionsandawards.UponconsummationoftheLILCOCombinationdescribedelsewhereinthisJointProxyStatement/Prospectus,theHoldingCompanywillassumetheseplans'andtheshares,optionsandawardsgrantedunderthem,SeepageJ-18andpage72oftheJointProxyStatement/Prospectus.'7.1VItatwillhapp'entoBrooklynUnion'sretirementandotheremployeebenefitplans?KeySpanwilltakeoverresponsibilityforallBrooklynUnionretirementandemployeebenefitplans,-suchasourdefinedbenefitanddefinedcontributionpensionplans,healthplansanddisabilityplans.Benefitsprovidedforintheseplanswillnotbechangedasaresult"ofourrestructuringintoaholdingcompany'.ForadescriptionoftheeffectsoftheLILCOCombinationontheseplans,seepage72'ofthe'ointProxyStatemen't/Prospectus.SUMMARYOFOTHERSELECTEDINFORMATION:15.WhocanIcallifIhaveanyquestions?Wehavesetupaspecialnumberforyou.Youare'welcometocallGeorgeson&CompanyInc.,whichisassistinginourproxysolicitation,tollfree,at1-800-223-2064.FORBROOKLYNUNIONEMPLOYEESANDRETIREEiS:CertainConsiderations(seepagesJ-10-J-11)Certainfactorsforyourconsiderationindeterminingwhethertovote"FOR"ourholdingcompanyproposalandtoadopttherelatedAmendedandRestatedAgreementandPlanofExchangearediscussedunder"Proposal2:HoldingCompanyandAdoptionoftheKeySpanExchangeAgreement-CertainConsiderations."16.Howwillstock-basedemployeebenefitplansbeaffected?BrooklynUnion'sEmployeeSavingsPlan,DiscountStockPurchase'PlanforEmployees,RegulatoryApprovals(seepageJ-13),TheNewYorkPublicServiceCommissionapprovedourholdingcompanyrestructuringbyanorderdatedSeptember25,1996.This,orderalsoJ-4 pprovedanewrateplanthatbecameeffectiveonOctoberI,1996andcertaincustomerprotection,provisions.Thenewrateplanwillcontinuetoapply,eveniftheholdingcompanyproposalandtheAmendedandRestatedAgreementandPlanofExchangearenotadoptedattheBrooklynUnion."Meeting.PConditionstotheKeySpanShareExchange(seepagesJ-13-,J-l4)Completionoftheshareexchangedependsonthesatisfactionofcertainconditions,including:(a)commonshareholderapprovalattheBrooklynUnionMeeting;(b)KeySpan'scommonsharesbeinglistedontheNewYorkStockExchange;(c)redemptionofBrooldynUnion'soutstandingpreferredstock;and(d)KeySpan'srestatedcertificate'ofincorporation(s'eeAnnexLtothisJointProxyStatement/Prospectus)andacertifiCateofexchangebeingfiledwiththeNewYorkDepartmentofState.,KeySpan',srestatedcertificateofincorporation.and(by-laws,whichwillgoverncertainrights.ofKeySpan'sshareholdersaftertheshareexchange,SeeAnnexL.AmendmentorTerminationof,theExchangeAgreement(seepageJ-IS)TheBrooklynUnionandKeySpanBoardsofDirectorsmayamendanyofthetermsoftheAmendedandRestatedAgreementandPlanofExchangeatanytimebeforeo'rafteritsadoptionbyBrooklynUnioncommonshareholders.Noamendment,however,maymateriallyandadverselyaffecttherightsofBrooklynUnion'sshareholders.iATheAgreement,maybeterminatedandtheshareexchangeabandonedatanytimebeforeoraftershareholdersadopttheAgreement,ifBrooklynUnion'sBoardofDirectorsdeterminesthatthecompletionoftheKeySpanshareexchangewouldnotbeinthebestinterestsofBrooklynUnionorourshareholders.CertainOtherConsequencesofShareholderAdoptionoftheExchangeAgreementseepagesJ-14andJ-18-J-24)eAmendedandRestatedAgreementandPlanofExchangeprovidesthataftertheshareexchange,sharesofKeySpancommonstockandKeySpanstockoptionsandperformanceawards(insteadofBrooklynUnioncommonstockstockoptionsandperformanceawards)willbeissued,grantedorawardedbyKeySpanunderBrooklynUnion'sformeremployeestockplans,allofwhichhavebeenpreviouslyapprovedbyBrooklynUnionshareholders.TheresponsibilityforthesestockplanswillbetakenoverbyKeySpan.Inaddition,sharesofKeySpancommonstock(insteadofBrooklynUnioncommonstock)willbeissuedaftertheshareexchangeundertheDividendReinvestmentandStockPurchasePlan.ForadescriptionoftheeffectsoftheLILCOCombinationontheseplans,seepage72oftheJointProxyStatement/Prospectus.SincetheAmendedandRestatedAgreementandPlanofExchangeisconditionedonKeySpan'srestatedcertificateofincorporationbeingfiledpriortotheshareexchangewiththeNewYorkDepartmentofState,avotebyBrooklynUnionommonshareholdersforadoptionofProposal2andatAgreementwillconstituteapprovalofComparativeShareholders'ights(seepagesJ-22-J-24)WhentheKeySpanshareexchangeiscomplctcd,holdersofBrooklynUnioncommonstockwillautomaticallybecomeholdersofKeySpancommonstock,andtheirrightswillbegovernedbyKeySpan'srestatedcertificateofincorporationandby-lawsinsteadofthoseofBrooklynUnion.SeeAnnexI..'KeySpan'srestatedcertificateofincorporationwillgiveKeySpanbroadcorporatepowerstoengageinanylawfulactoractivityforwhichacorporationmaylieformedunderNewYorkjaw.Incontrast,-~BrooklynUnion'scorporatepurposesarethoserelatedtogas,electricityorotherformsofenergyandrelatedactivities.Certainotherdifferencesbetweentherightsofkolders*ofKeySpancommonstockandthoseofholdersofBrooklynUnioncommonstockaresummarizedonpagesJ-23-J-24.AlloutstandingsharesofBrooklynUnionpreferredstockwillberedeemedpriortotheKeySpanshareexchangeifProposal2isapprovedbyBrooklynUnioncommonshareholders.ForadescriptionoftherightsofholdersofBLstockaftertheLILCOCombination,seepage63oftheJointProxyStatement/Prospectus.J-5 RegulationofKeySpanandBrooklynUnion(seepagesJ-25-J>>27)FollowingtheKeySpanshareexchange,KeySpan,astheparentcompanyofBrooklynUnion,willhavetocomplywiththeprovisionsoftheNewYorkPublicServiceCommission'sorderofSeptember25,1996.BrooklynUnionwillcontinuetoberegulatedbythePSCasbefore.ThePSCordercontainsrestrictionsonKeySpan'sinvestmentsinnon-utilitysubsidiariesandotherbusinesses,transactionsbetweenBrooklynUnionandKeySpanandotherKeySpansubsidiaries,loans,guaranteesorpledgesbyBrooklynUnionforthebenefitofKeySpan'orKeySpan'ssubsidiaries,andonBoardandmanagerialinterlocks.TheregulationofKeySpanandBrooklynUnioncouldultimatelychangeasaresultoftheregulatoryimplicationsassociatedwiththebusinesscombinationwithLILCO.Seepage47oftheJointProxyStatement/Prospectus.BrooklynUnioncurrentlyisnotsubjecttothefederalPublicUtilityHoldingCompanyActof1935.WhentheKeySpanshareexchangeoccurs,KeySpanwillbecomea"publicutilityholdingcompany"andwillfileanexemptionstatementwiththeSecuritiesandExchangeCommissiontoexemptitandeachofitssubsidiariesfromthatAct(exceptforthoseprovisionsrequiringapprovalofcertainacquisitionsandinvestments).ForadescriptionoftheregulationofBLaftertheLILCOCombination,seepage54ofthisJointProxyStatement/Prospectus.'ewRatePlanofBrooklynUnion(seepageJ-27)TheSeptember25,1996NewYorkPublicServiceCommissionorderincludesanewrateplanthattookeffectonOctober1,1996andwillremainineffectuntilSeptember30,2002.Therateplanessentiallyfreezesthenon-gascomponentofBrooklynUnion'soverallratesforsixyears,butprovidesfortheeliminationofanyceilingonearningsaswellastheretentionofcostsavingsandrevenuegrowthfortheshareholders.'TherateplanwillcontinuetogovernBrooklynUnion'sutilityratesandchargesevenifcommonshareholdersdonotapprovetheholdingcompanyproposalandadopttheAmendedandRestatedAgreementandPlanofExchangeattheBrooklynUnionMeeting.Inthatevent,unlesstheLILCOCombinationisconsummated,BrooklynUnionwillnotbeabletorealizethebenefitsweexpectfromaholdingcompanystructure,whichwebelieveisnecessaryinthefuturederegulatedcompetitiveenvironmentoftheenergyindustry.StatutoryAppraisalRights(seepagesJ-27-J-29andAnnexItothisJointProxyStatement/Prospectus)HoldersofsharesofBrooklynUnioncommonstockwhodonotvotefortheholdingcompanyproposalandadoptionoftheAmendedandRestatedAgreementandPlanofExchange,andwhotimelydissentandfollowtheproceduresinSections623and910oftheNewYorkBusinessCorporation-Law,willthenhavecertainrightsasaresultoftheshareexchangetodemandpaymentincashforthe"fairvalue"oftheirBrooklynUnioncommonshares.Failuretotakeanyrequiredproceduresonatimelybasismayresultinthelossofthoserights.Theamountobtainableuponavalidexerciseofthoserightsissubjecttodeterminationbyjudicialproceedings,andcannotbepredicted.SincetheBrooklynUnionpreferredstockisnotbeingexchangedintheshareexchangebutwillberedeemedpursuanttoitstermspriortotheKeySpanshareexchangeifProposal2isapprovedbyBrooklynUnioncommonshareholders,holdersofBrooklynUnionpreferredstockarenotentitledtostatutoryappraisalrights.
tBROOKLYNUNIONPROPOSAL2:HOLDINGCOMPANYANDADOPTIONOFTHEKEYSPANEXCHANGEAGREEMENTTliisAnnexJdescribestheBrooklynUnionholdingcompanyproposalanddiscussestheeffectsoftheKeySpanshareexchange.ForadescriptionoftheproposedLILCOCombinatioir,theLIPATransactionandtheireffects,seetheJointProxyStatement/Prospectus.Themanagement'andtheBoardofDirectorsofBrooklynUnionunanimouslybelievethatitisinthebestinterestsofBrooklynUnionanditsshareholderstorestructureBrooklynUnionsothatitwillbecomeaseparatesubsidiaryofanewparentholdingcompany,withthepresentholdersofBrooklynUnioncommonstockbecomingtheholdersofthecommonstockofthenewparent.Tocarryoutsuchrestructuring,BrooklynUnionhascausedtobeincorporatedaNewYorkcorporation,KeySpanEnergyCorporation(referredtointhisJointProxyStatement/Prospectusas"KeySpan"),whichnowhasanominalamountofstockoutstandingandnopresentbusinessorpropertiesofitsown.AllofthecurrentlyoutstandingsharesofKeySpan'scommonstock,parvalue$.33Mpershare("KeySpancommonstock"),areownedbyBrooklynUnion.TheBoard,ofDirectorsofeachofBrooklynUnionandKeySpanhasadoptedtheAmendedandRestatedAgreementandPlanofExchangeunderwhich,subjecttoadoptionbyBrooklynUnion'sshareholdersandthesatisfactionofotherconditions,BrooklynUnionwillbecomeasubsidiaryofKeySpanthroughtheexchangeoftheoutstandingsharesofBrooklynUnioncommonstockonashare-for-sharebasisforsharesofKeySpancommonstock(referredtointhis'ointProxyStatement/Prospectusasthe"KeySpanshareexchange"orthe"KeySpanexchange").ItisintendedthataftertheconsummationoftheKeySpanshareexchange,allnewnon-utilitysubsidiarieswillbeestablishedasdirectsubsidiariesofKeySpan,certain,ifnotall,ofBrooklynUnion'sexistingsubsidiariesinvolvedinnon-utilityoperations(collectively,the"non-utilitysubsidiaries")eventuallywillbetransferredtoKeySpanandbecomesubsidiariesofKeySpanandsuchsubsidiarieswill,totheextentcticable,conductthenon-utilitybusinessoftheconsolidatedentity.See"-TheShareExchange-TransferfBrooklynUnion'sNon-UtilitySubsidiariestoKeySpan."TheKeySpanExchangeAgreementisattachedtothisJointProxyStatement/ProspectusasAnnexKandisincorporatedhereinbyreference.'rooklynUnionissubjecttoregulationbytheNewYorkPublicServiceCommission(the"PSC")undertheNewYorkPublicServiceLaw(the"PublicServiceLaw").OnSeptember25,1996,thePSCissuedanorder(the"PSCOrder")approvingtheholdingcompanyrestructuringandthetermswithwhichBrooklynUnionandKeySpanhaveagreedtocomplyintheiron-goingrelationshipsandactivities,includinganewrateplanandcertaincustomerprotectionprovis'ions.'easonsfortheHoldingCompanyStructureandKeySpanShareExchangeGeneralTheproposedholdingcompanystructureisintendedtoprovideBrooklynUnionanditssubsidiarieswiththefinancialandregulatoryflexibilitytocompetemoreeffectivelyinanincreasinglycompetitiveenergyindustrybyrelaxingconstraintsimposedbythePSConincrementalinvestmentsinunregulatedoperations,annualinvestments,amountsinvestedinany.singlelineofbusiness,andfinancialratiosofsubsidiaries.Relaxingconstraintsandeliminatingtime-lagsassociatedwithregulatorydecisionsshouldallowmorerapidmovesinanindustrywherecompetitorsdonothavethesameconstraintsasregulatedentities.TheBoardofDirectorsofBrooklynUnionbelievesthataholdingcompanystructurewillprovidegreateropportunityforgrowthandenhancedvalues,andgreaterfiexibilityindevelopingandoperatingnewbusinessesandgreaterflexibilityregardingthetiming,methodandamountoffinancingsandacquisitions,throughtheseparationbetweentheutilityandnon-utilitybusinessesandrelaxedconstraintsonunregulatedactivities.TheBrooklynUnionBoardlievesthataseparationbetweenutilityandnon-utilitybusinesseswillservetoprotectthefinancialintegrityofeutilitybusinessfromrisksinvolvedinnon-utilitybusinessesandventures,andprovidegreaterfiexibilityJ-7 regardingthetiming,methodandainount'of"financingshndacquisitions.UndertheBrooklynUnion/LILCAgreement,BrooklynUnion.andKeySpanwill'requireLILCO's"cons'enttoundertakecertainactions.Seepages67to78oftheJointProxyStatement/Prospectus.CompetingintheNeiv'egulatoryEitvirontnentTheBoardofDirectorsofBrooklynUnionbelievesthattheproposedholdingcompanystructuretsessentialforBrooklynUnionto,continuetooperateassuccessfullyinthe,futureasithasinthepast.Adecadeago,thepriceofgaswascontrolledbyregulation.andstatutesfromtheoriginalproducerandsupplierthroughtheultimateend-user.Curre'ntly,thereisnolongerregulationoverthesalepriceofnaturalgasasacommodity,andtheregulationofinterstatetransmissionatthefederallevelhasbeen.relaxed.Similarregulatoryinitiativesaretakingplaceatthestatelevel,includinginNewYork,toextendcompetitionintotheretailsector.iThe,regulatorydevelopmentsat'hefederallevelhaveresultedinamplesuppliesofthe,naturalgascommodityaggressivecompetitionamonggasutilities,aswellasunregulatedgasmarketingbroker'sandsuppliersatthegassource,anddecliningprices,inrealdollarterms,fornaturalgasforallconsumers'overthelastdecade.Interstatepipelinecapacityrightsarealsobecomingacommoditywhichcannowbeboughtorsoldforshortorlongperiodsoftime.Thus,entitieslikeBrooklynUnionhavetheopportunitytomarkettemporarilyunusedpipelinecapacityforthebenefitoftheircustomersandshareholders.sIIInaddition,therehavebeenseveralothersignificantregulatoryinitiativesaffectingutilitycompaniesandtheircustomers.Localtransportatio'nofgaspurchasedbyend-usersfromthirdpartysellershasbeenavailableinNewYorksince1984,butuntil'recentlytheprincipalbeneficiariesofthisavailabilityhadbeenlargenon-corecommercialandindustrialcustomers:Throughfurtherregulatorymodifications,directaccesstogassoldbythirdpartieshasbecome'availableforthefirsttimetoBrooklynUnion'scorecustomers,includingresidentialcustoiners.Similarinitiativesare'takingplaceatthefederalandstatelevelsintheelectricindustry,asincreasinwholesaleandretailcompetitionintheelectricgenerationsectorislikelytoemergeoverthenextfewyears.Thesedevelopments.intensifythealreadyfiercely.competitiveenvironmentinwhichtraditionalprovidersofalternativeenergysources,primarilyfueloildealers,aggressivelycompeteinmostofBrooklynUnion'smarkets.Thedistinctionsbetweenenergysourcesisincreasinglyblurred,asoil,gasandelectricitycometobeviewedassomewhatinterchangeablecommodities,subjectingBrooklynUniontogreatercompetition.,lbNntMoreover,anewrateplan(includingthesix-yearratefreeze)tookeffectonOctober1,1996,andwillcontinuetogoverntheutilityratesofBrooklynUnionevenifcommonshareholdersofBrooklynUniondonotapprovetheholdingcompanyproposalandadopttheKeySpanExchangeAgreement.Inthatevent,BrooklynUnionwillnotbeabletorealizethebenefitsitexpectsfromaholdingcompanystructureunlesstheLILCOCombinationisconsummated.See"-"TheKeySpanShareExchange-""NewRatePlanofBrooklyn"Union'elow.FlexibilityofUtilityandNon-UtilityBusinessesBrooklynUrlionhasbeenoperating'undertheregulatoryconstraintsofthePSCwhichlimit(i)thetotalamountofthe'incrementalinvestment'in'itsunregulatedoperations,'(ii)theamountthatcanbeinvestedannually,'iii)the'cumulativeamount'that'canbeirivestedinanysinglelineofbusiness,and(iv)thedebt-equityratiosofitssubsidiaries.ThesearesignificantconstraintsonBrooklynUnion'sabilitytomoverapidlyinanincreasinglycompetitiveenvironment.Moreover,theliinitationofinvestmenttoexistinglinesofbu'sinessisalsoconstrainingbecausetheindustryischarigIng'sorapidlythatnewlinesofbusinessarearisingthatwerenotevenenvisionedatthetimethatthesePSCregulatorylimitswereadopted.'Asdiscussedbelowunder"-''TheKeySpanShareExchange-TransferofBrooklynUnion'sNon-UtilitySubsidiariestoKeySpan",aftertheholdingcompanyrestructuring,all.newnon-utilitysubsidiarieswillestablishedasdirectsubsidiariesof.KeySpanandcertain,ifnotall,ofcurrentnon-utilitysubsidiariesofBrooklJ-8 nioneventuallywillbetransferredtoandbecome,orbecomeownedthrough,separatesubsidiariesofKeySpan.BrooklynUnionbelievesthefinancialandregulatoryflexibilityprovidedbythisholdingcompanyst~cturewillenableittooperatemoreeffectivelyinthechangingenvironmentandmoreeasilyaddressthenewlevelsofcompetition.BrooklynUnionmayrequestarulingfromtheInternalRevenueServicethatitmaycauseitsnon-utilitysubsidiariestobedistributedtoKeySpanfollowingtheshareexchange(andthustobecome,orbecomeownedthrough,separatesubsidiariesofKeySpan)withouttherecognitionofgainbyBrooklynUnion.BrooklynUnionbelievesthatitwillbeabletoderivesignificantbenefitsfromtheconsummationoftheshareexchangewhetherornottherulingisobtained.Asmanyintheenergyindustrybelieve,thenewcompetitiveenvironmentmayleadtoadditionalconsolidation,verticalexpansion,andotherstrategicalliances,asenergycompaniesmayberequiredtoofferafullrangeofenergyservicestocompeteeffectivelyinordertoretainandattractcustomers.Forexample,consolidationsbetweenBrooklynUnionandotheroperatingutilities(e.g.,throughmergerand/oracquisition)couldresultineconomiesofscaleandsynergiesbyenablingtheconsolidatedcompanytotakeadvantageofcommonneedsandcomplementarystrengths.Verticalintegrationcouldalsoenableutilitiesto'offercustomersmorecompleteenergypackages.Strategicallianceswithunregulatedthirdpartyparticipantsand/ordiversificationintounrelatedfieldsmayalsohelpprotectagainstthemarketandfinancialriskstowhichBrooklynUnionisnow,andincreasinglywillbe,'exposed.Thus,KeySpanmaywishtoincreaseits-investmentinunregulatedenergy-relatedbusinesses,whetherthroughadditional"groundfloor"investment,theacquisitionofexistingenergyandenergyservicesproviders,ortheformationofstrategicallianceswithindustrypartners.KeySpanwillcontinuetoseektoinvestinthecurrentlinesofbusiness,'uchasexplorationandproduction,pipelinetransportationandgasstorage,andwillengageinenergymarketingandotherenergy-relatedactivities.AlthoughKeySpanhasnotidentifiedotherspecificbusinessopportunities,itbelievesthatsuchactivitieswouldlikelyincludeareaswithwhichBrooklynUnionisalreadyfamiliar,suchasinformationsystems,environmentalervices,gasapplianceservices,engineeringservices,financialservices,meterreading,andbillingandcollection.ervices.Underaholdingcompanystructure,KeySpanshouldbeabletotakeadvantageofopportunitiesinatimelyfashionandcompetemoreeffectivelyagainstotherenergycompanies.ExceptfortherestrictionssetforthinthePSCOrderanddiscussedin"-TheKeySpanShareExchange-ThePSCOrder,"KeySpanbelievesitshouldnototherwiseberequiredtoobtainPSCapprovalforinvestmentsinnon-utilitybusinesses,wouldnotbesubjecttothelimitationsimposedundercertainprovisionsofNewYorklawapplicabletoBrooklynUnion,andthusshouldbeabletocompetemoreeffectivelyagainstotherentitiesnotsubjecttosimilarconstraints.FinancingFlexibilityUnderSection69ofthePublicServiceLaw,BrooklynUnioncannotjssuedebtorequitysecuritiesforotherthanutilitypurposes.Thus,thepracticallimitofitsinvestment,innon-utilitybusinessesistheamountofBrooklynUnion'sretainedearnings.ThislimithasnotposedapracticalprobleminthepastbecauseBrooklynUnion'snon-utilitybusinesseswereclearlydefinedandlimitedinscopeandmagnitude.Now,however,suchalimitisinappropriateinthenewenvironment,especiallyinlightofthefactthatBrooklynUnion'sprincipalpresent,andlikelyfuture,competitorsarenotsubjecttosimilarconstraints'.TheBoardofDirectorsofBrooklynUnionbelievesthatthebestwaybothtoreducethe,regulatoryconstraintsdescribedabove,andtoensurethatutilitycustomerscontinuetobeinsulatedfrompotentialrisksresultingfrominvestmentsinnon-utilitybusinessesandventures,istoadoptaholdingcompanystructure,whileprovidingsufficientprotectiontocustomerstoassurethatBrooklynUnionwillcontinuetoprovidesafe,adequateandreliableserviceatjustandreasonablerates.ItAftertheKeySpanshareexchange,financingofunregulatedactivitiesofKeySpananditsdirectnon-utilityubsidiarieswillnotrequirePSCapproval.Inaddition,thecapitalstructureofeachdirectnon-utilitysubsidiaryaybeappropriatelytailoredtosuititsindividualbusiness.Also,undertheholdirtgcompanystructure,KeySpanJ-9 wouldnotneedPSCapprovaltoissuedebtorequitysecuritiestofinancetheacquisitionofthestock'orassetsoothercompanies.Theabilitytoraisecapitalforacquisitionswithoutprior'PSCapprovalshouldallovercompetitiononalevelbasiswithotherpotentialacquirors,someofwhicharealreadyholdingcompanies.Underaholdingcompanystructure,theissuanceofdebtorequitysecuritiesbyKeySpantofinancetheacquisitionofthestockorassetsofanothercompanyshouldnotadverselyaffect-BrooklynUnion'scapitaldevotedtoandavailable,forregulatedutilityoperations.ICertainConsiderationsFuturePerfonnanceofKeySpanCommonStockCannotBeAssuredThepurposeoftheKeySpanshareexchangeistoestablishaholdingcompanystructurethatwillenhancetheabilitytotakeadvantageofbusinessopportunitiesoutsideofBrooklynUnion'spresentmarkets.TheBoardofDirectorsbelievestheKeySpanshareexchangeandholdingcompanystructuretobeinthebestinterestsofBrooklynUnionanditsshareholders.Nevertheless,thesuccessofKeySpaninrealizingitsgoalsandthefutureperformanceofKeySpancommonstockcannotbeassured.DividendsonKeySpanCommonStockWillInitiallyDependonCommonStockDividendsPaidbyBrooklynUnionKeySpan,doesnotnow,norwillitimmediatelyaftertheKeySpanshareexchange,conductdirectlyanybusinessoperationsfromwhichitwillderiveanyrevenues.KeySpanplanstoobtainfundsforitsownoperationsfromdividendspaidtoKeySpanbyitssubsidiaries,andfromsalesofsecuritiesordebtincurredbyKeySpan.DividendsonKeySpancommonstockwillinitiallydependupontheearnings,financialconditionandcapitalrequirementsofBrooklynUnion,andthedividendsthatBrooklynUnionpaystoKeySpan.Inthefuture,dividendsfromKeySpan'ssubsidiariesotherthanBrooklynUnion,mayalsobeasourceoffundsfordividendpaymentsbyKeySpan.Although,ithasnopresentintentiontodoso,BrooklynUnionmayissuepreferredstockinthefuturetomeetitscapitalrequirements.SuchpreferredstockwouldhavedividendrightswhicharepreferentialtothepaymentofdividendsbyBrooklynUniontoKeySpan.ThePSCOrderalsoimposescertainlimitationsonthedividendsthatBrooklynUnionmaypaytoKeySpaaftertheKeySpanshareexchange.Generally,BrooklynUnionmaynotpayKeySpanmorethan100%ofincomeavailablefordividends.Also,ifthereisasignificantreductioninservicequalitybyBrooklynUnion(accordingtospecificguidelines)orifcertainspecifiedcreditratingagenciesdowngradeBrooklynUnion'sdebtratingstospecifiedlevels,furtherlimitsmaybeplacedupontheamountofdividendsBrooklynUnionmaypaytoKeySpan.See"-TheKeySpanShareExchange-DividendPolicy."KeySpanpresentlyexpectstopayquarterlydividendsonKeySpancommonstockatleastequaltotherate,andonapproximatelythesameschedule,asthedividendmostrecentlydeclaredbyBrooklynUniononitscommonstock.Whilefuturedividendswilldependontheearnings,financialconditionandcapitalrequirementsofBrooklynUnionanditsothersubsidiaries,KeySpanpresentlyexpectstocontinueapolicyofpayinganappropriatepercentageofearningstoshareholders.Itis.anticipatedthattheinterimannualizeddividendratepaidtotheHoldingCompanycommonshareholdersaftercompletionoftheLILCOCombinationandtheLIPATransactionwillbe$L78percommonshare,subjecttoapprovalanddeclarationbytheHoldingCompanyBoardofDirectors.ThisdividendrateisintendedtobeinplacefromtheclosingofthesetransactionsuntilsuchtimeastheHoldingCompany'sBoardhasestablisheditsformaldividendpolic'y.ThepaymentofdividendsbytheHoldingCompanyinthefuture,however,willdepe'ndonbusinessconditions,resultsofoperations,financialconditions,andotherfactors.SeepageoftheJointProxyStatement/Prospectus.FNon-UtilityBusinessesBrooklynUnion'sprincipalnon-utilitysubsidiariesparticipateandowninvestmentsingasandoilexplorationandproduction,gaspipelinetransportationandstorage,cogeneration,marketingandotherenergy-relatedservices.BrooklynUnionwilleventuallytransfercertain,ifnotall,ofthesesubsidiariesandinvestmenttoKeySpanfollowingtheKeySpanshareexchange,subjecttoreceiptofcertaintaxrulings.Similarly,newno tilitysubsidiarieswillbeestablishedasdirectsubsidiariesofKeySpan.See"-TheKeySpanShareExchange-TransferofBrooklynUnion'sNon-UtilitySubsidiariestoKeySpan."ItisthecurrentintentionofKeySpanforthenon-utilitysubsidiariestoengageprimarilyinenergy-relatedbusinesseswhichwillnotberegulatedbystateorfederalagencieswhichregulatepublicutilities.SuchbusinessesmayencountercompetitiveandotherfactorsnotpreviouslyexperiencedbyBrooklynUnion,andmayhavedifferent,andperhapsgreater,investmentrisksthanthoseinvolvedintheregulatednaturalgasutilitybusinessofBrooklynUnion.Therecanbenoassurancethatsuchbusinesseswillbesuccessfulor,ifunsuccessful,thattheywillnothaveadirectorindirectadverseeffectonKeySpan.Asisthecasenow,anylossesincurredbysuchbusinesseswillnotberecoverableinutilityratesofBrooklynUnion.ForfurtherinformationregardingBrooklynUnion'snon-utilitysubsidiaries,seeNotes3,7,8and10tothe1996ConsolidatedFinancialStatementsand"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations"inBrooklynUnion'sAnnualReportonForm10-K/AforthefiscalyearendedSeptember30,1996.Comparableearningsfr'omBrooklynUnion'sunregulatedbusinesses(excluding1996after-taxgainsfromaninitialpublicofferingofasubsidiaryandthesaleofaplant($33,5million)andanafter-taxreorganizationcharge($7.8million))were$14.8million,or30centspershareinfiscal1996,$12.8million,or27centspersharein1995,and$10.4million,or22centsper'harein1994.BrooklynUnion'stotalinvestmentinthesebusinesses,computedinaccordancewithPSCspecificationsasapercentageofconsolidatedcapitalization,was13.4%,14.2%and12.8%asofSeptember30,1996,1995and1994,respectively.KeySpanwillobtainfundstoinvestinnon-utilitysubsidiariesandotherbusinessesfromdividendsitreceivesfromBrooklynUnion,borrowingsandotherfinancings,anddividendsKeySpanmayinthefuturereceivefromanynon-utilitysubsidiaries.Therecanbenoassurancethatnon-utilitysubsidiarieswillhaveearningsorpayanydividendstoKeySpanintheforeseeablefuture.ImplementationoftheNeivRatePlanThenewrateplan(includingthesix-yearratefreeze)tookeffectasofOctober1,1996andwillcontinuetogovernutilityratesandchargesofBrooklynUnionevenifcommonshareholdersofBrooklynUniondonotapprovetheholdingcompanyproposaland'adopttheKeySpanExchangeAgreement.Inthatevent,BrooklynUnionwillnotbeabletorealizethebenefitsitexpectsfromaholdingcompanystructurepriortotheconsummationofthebusinesscombinationwithLILCO.Seealso"-TheKeySpanShareExchange-NewRatePlanofBrooklynUnion"below..CertainRestrictionsinthePSCOrderAssummarizedabove,thePSCOrderimposescertainlimitationsonthedividendsthatBrooklynUnionmaypaytoKeySpanaftertheKeySpanshareexchange.Seealso"-TheKeySpanShareExchange-DividendPolicy."ThePSCOrderalsocontainsrestrictionsonKeySpan'sinvestmentsinnon-utilitysubsidiariesandotherbusinesses,transactionsbetweenBrooklynUnionandKeySpanoranyothersubsidiaryofKeySpan,loans,guaranteesorpledgesbyBrooklynUnionforthebenefitofKeySpanoranyothersubsidiaryofKeySpan,andBoardandmanagerialinterlocksbetweenBrooklynUnionandKeySpanoranyothersubsidiaryofKeySpan.See"-TheKeySpanShareExchange-ThePSCOrder"and"-Management-Restric'tionsonBoardandManagementInterlocksbetweenKeySpanandB'rooklynUnion."Therecanbenoassuranceastotheeffect,tfany,thatsuchrestrictionswillhaveonthebusinessoroperationsofKeyspan,BrooklynUnionorthenon-utilitysubsidiaries.InconnectionwiththeproposedLILCOCombination,BrooklynUnionandLILCOhavefiledapetition,withthePSCrequesting,amongotherthings,theremovalorrelaxationofcertainoftherestrictionsdescribedherein.ThePSChasnotacteduponsuchpetitionasofthedateofthisJointProxyStatement/Prospectus,andtherecanbenoassurancethatanyorallofthereliefrequestedinthepetitionwillbegranted.OtlterRestrictionsUndertheBrooklynUnion/LILCOAgreement,BrooklynUnionandKeySpanwillrequireLILCO'sconsentundertakecertainactions.Seepages67to78ofthisJointProxyStatement/Prospectus.
RelationshipBetweentheKeySpanShareExchangeandtheLILCOCombinationrTheKeySpanshareexchangeandtheLILCOCombinationarenotconditionedononeanother.IfBrooklynUnion'sshareholdersapprovetheholdingcompanyproposal,wewilleffecttheKeySpanshareexchangeregardlessofwhethertheLILCOCombinationisapprovedor'consummated.IfBrooklynUnion'sshareholdersapproveboththeholdingcompanyproposalandtheLILCOCombinationproposal,BrooklynUnionintendstoproceedwiththeKeySpanshareexchangefirst.Inthatcase,KeySpanwillassumeBrooklynUnion'srightsandobligationsundertheBrooklynUnion/LILCOAgreementwithLILCOandeffectivelywillbereplacingBrooklynUnionastheentitythatwillengageinabindingshareexchangewiththeHoldingCompany.IfandwhentheLILCOCombinationclosesandBrooklynUnionandthenon-utilitysubsidiariesbecomeindirectsubsidiariesoftheHoldingCompany,weanticipatethatKeySpanwillbedissolvedsothattherewouldonlybeoneholdingcompanyforBrooklynUnion,thenon-utilitysubsidiariesandLILCO.*TheLILCOCombinationdescribedintheJointProxyStatement/Prospectuswillalsoresult.inaholdingcompany,,structure.ShareholderapprovaloftheKeySpanholdingcompanyproposal,however,willallowBrooklynUniontotakeadvantageoftheholdingcompanystructurepriorto,andregardlessof,theclosingoftheLILCOCombination.BrooklynUnion'sabilitytomakeinvestmentsinunregulatedbusinessesissubjecttocertainrestrictionsunderitsagreementwithLILCO.BrooklynUnionmaytransferthenon-utilitysubsidiariesdirectlytotheHoldingCompanyiftheLILCOCombinationisconsummatedpriortothetimethatatransfertoKeySpanofsuchsubsidiariesoccurs.ThisAnnexJdescribestheBrooklynUnionholdingcompanyproposalanddiscussestheeffectsoftheKeySpanshareexchange.ForadescriptionoftheproposedLILCOCombination,theLIPATransactionandtheireffects,seetheJointProxyStatement/Prospectus.A.THEKEYSPANSHAREEXCHANGETheKeySpanExchangeAgreementTheKeySpanExchangeAgreementhasbeenunanimouslyadopted'bytheBoardsofDirectorsofBrooklynUnionandKeySpanandis'subjecttoadoptionbytheholdersofatleasttwo-thirdsoftheoutstandingsharesofBrooklynUnioncommonstock'.See"-VoteRequired"below.IntheKeySpanshareexchange,(i)eachshareofBrooklynUnioncommonstockoutstandingimmediatelypriortotheeffectivetimeoftheKeySpanshareexchangewillbeexchangedforonenewshareofKeySpancommonstock,(ii)KeySpanwillbecometheownerofalloutstandingBrooklynUnioncommonstock,and(iii)thesharesofKeySpancommonstockheldbyBrooklynUnionimmediatelypriortotheKeySpanshareexchangewillbecancelled.Asaresult,uponcompletionoftheKeySpanshareexchange,KeySpanwillbecomeaholdingcompany,BrooklynUnionwillbecomeasubsidiaryofKeySpan,andallsharesofKeySpancommonstockoutstandingimmediatelyaftertheKeySpanshareexchangewillbeownedbytheformer,holdersofBrooklynUnioncommonstockoutstandingimmediatelypriortotheKeySpanshareexchange.ItisintendedthatfollowingtheKeySpanshareexchange,certain,ifnotallofBrooklynUnion'sexistingnon-utilitysubsidiarieseventuallywillbetransferredtoKeySpanandbecomesubsidiariesofKeySpan.See"-TransferofBrooklynUnion'sNon-UtilitySubsidiariestoKeySpan."TheKeySpanExchangeAgreementisattachedtothisJointProxyStatement/ProspectusasPnnexKandisincorporatedhereinbyreference.TheKeySpan"shareexchangeisc'onditionedonBrooklynUnio'nredeemingitspreferredstockifthecommonshareholdersvotefortheholdingcompanyproposal.Underthetermsofthepreferredstock,thenoticeofredemptionmustbemailedatleast30dayspriortotheredemptiondate.BrooklynUnionintendstoconsummatetheKeySpanshareexchangeaftertheredemptiondate.AnoticeofredemptionwillbesenttoholdersofBrooklynUnionpreferredstockpromptlyaftertheBrooklynUnionMeeting,assumingthatshareholdersvotetoapprovethe,holdingcompanyproposal.ThenoticeofredemptionwillincludeinstructioforholdersofpreferredstocktofollowinsurrenderingtheircertificatesevidencingsuchstocktoreceivetJ-.12 Iedemptionpriceinpaymenttherefor.DebtofBrooklynUnionwillremainunchangedandwillcontinueasoutstandingobligationsofBrooklynUnionaftertheKeySpanshare'exchange.VoteRequiredUnderNewYorklaw,theaffirmativevoteoftheholdersofrecordon'therecorddateoftwo-thirdsoftheoutstandingsharesofBrooklynUnioncommonstockisrequiredtoapprovetheholdingcompanyproposalandadopttheKeySpanExchangeAgreement.Becausetherequirementforthisproposalistheaffirmativevoteoftwo-thirdsoftheoutstandingcommonshares,brokernon-votesandabstentionswillhavetheeffectofa"no"vote."HoldersofBrooklynUnionpreferredstockareentitledtoreceivenoticeoftheSpecialMeeting,butarenotentitledtovoteontheholdingcompanyproposalandtheKeySpanExchangeAgreementattheBrooklynUnionMeeting.RegulatoryApprovalsNewYorkPublicServiceLaw1V'nderSection'70ofthePublicServiceLaw,anytransferofutilitystocksu'chaswilloccurintheKeySpanshareexchangeestbeapprovedinadvancebythePSC.OnSeptember25,1996,thePSCissueditsorderapprovingtheholdingcompany'restructuring.ThePSCOrderalsocontainstermswithwhichBrooklynUnionandKeySpanhaveagreedtocomplyintheiron-goingrelationshipandactivities,includingthenewrateplanandcertaincustomerprotectionprovisions.ThetermofthePSCOrderextendstoSeptember30,2002,unlessterminatedbyanearlierPSCorder.I'VPublicUtilityHoldingCompanyActof1935(the"HoldingCompanyAct")BrooklynUnioncurrentlyisnotsubjecttotheHoldingCompanyActbecauseitisnota"publicutilityIdingcompany".AsaresultoftheKeySpanshareexchange,KeySpanwillbecomeapublicutilityholdingompanyundertheHoldingCompanyAct.PursuanttotheKeySpanExchangeAgreement,simultaneouslywiththeeffectivenessoftheKeySpanshareexchange,KeySpanwillfilewiththeSECanexemptionstatement'oexemptitselfanditssubsidiariesfromallprovisionsoftheHoldingCompanyAct(exceptwithrespecttocertainacquisitionsandinvestments)pursuanttothe"intrastate"exemptionprovidedbySection3(a)(1)ofthatAct.ThebasisforexemptionisthatKeySpanandBrooklynUnionareeachorganizedandcarryontheirbusinesssubstantiallyintheStateofNewYork,andneitherKeySpannorBrooklynUnionwillderiveanymaterialpartofitsincomefromapublicutilitycompanyorganizedoutsideofthe'StateofNewYork.Tomaintainitsexemption,KeySpanmust,fileastatement,eachyearpriortoMarch1withtheSEC.TheSEChasauthorityundertheHoldingCompanyActtochallengetheavailabilityofKeySpan'sexemption.See"-RegulationofKeySpanandBrooklynUnion."ConditionstoEffectivenessoftheKeySpanShareExchangeTheKeySpanshareexchangeissubjecttothesatisfactionofthe,followingconditions(inadditiontoadoptionoftheKeySpanExchangeAgreementbytheholdersofBrooklynUnioncommonstock):(i)allnecessaryorders,authorizations,approvalsorwaiversfromthePSCandallotherjurisdictiveregulatorybodies,boardsoragencieshavebeenreceived,remaininfullforceandeffect,anddonotinclude,inthesolejudgmentoftheBoardofDirectorsofBrooklynUnion,unacceptableconditions;(ii)alloutstandingBrookly'nUnionpreferredstockhavebeenredeemedpursuanttoitsterms;(iii)sharesofKeySpancommonstocktobeissuedinconnectionwiththeKeySpanexchangehavebeenlisted,subjecttoofficialnoticeofissuance,bytheNewYorkStockExchange;and(iv)KeySpan'srestatedcertificate,ofincorporation(AnnexLtothisJointProxyStatement/Prospectus)hasbeenfiledwiththeNewYorkDepartmentofState(the"Department").I'ollowingsatisfactionoftheseconditions,theKeySpan,shareexchangewillbecomeeffectiveimmediatelyllowingthecloseofbusinessonthedateoffilingwiththeDepartmentofacertificateofexchangepursuantto mSection913(d)oftheNewYorkBusinessCorporationLaw.BrooklynUnion.cannotpredictwhenallcondition.willbesatisfied,butexpectsthattheKeySpanshare'exchangewillbecome'effectiveinthethirdquarterofcalendar1997.ExchangeofStockCertificatesIftheKeySpanshareexchangeiseffected,itwill-notbenecessaryforholdersofBrooklynUnioncommonstocktophysicallyexchangetheirexistingstockcertificatesforcertificatesofKeySpancommonstock.ThecertificateswhichrepresentsharesofBrooklynUnioncommonstockoutstandingimmediatelypriortotheeffectivetimeoftheKeySpanshareexchangewillautomaticallyrepresentanequalnumberofsharesofKeySpancommonstockimmediatelyaftertheeffectivetimeandwillnolonger,representBrooklynUnion,commonstock.NewcertificatesbearingthenameofKeySpanwillbeissuedaftertheKeySpanshareexchange,ifandascertificatesrepresentingsharesofBrooklynUnioncommonstockoutstandingimmediatelypriortotheKeySpanshareexchangearepresentedforexchangeortransfer.TheKeySpanshareexchangeisconditionedonBrooklynUnionredeemingitspreferredstockifthecommonshareholdersvotefortheholdingcompanyproposal.Underthetermsofthepreferredstock,thenoticeofredemptionmustbemailedatleast30dayspriortotheredertiptiondate.BrooklynUnionintendstoconsummatetheKeySpanshareexchangeaftertheredemptiondate.Anotice,ofredemptionwillbesent,toholdersofBrooklynUnion,preferredstockpromptlyaftertheBrooklynUnionMeeting,assumingtPatshareholdersvotetoapprovetheholdingcompanyproposal.Thenoticeofredemptionwillincludeinstructionsforholdersofpreferredstocktofollowinsurrenderingtheircertificates,evidencingsuchstocktoreceivetheredemptionpriceinpaymenttherefor.DebtofBrooklynUnionwillremainunchangedandwillcontinueasoutstandingobligationsofBrooklynUnionaftertheKeySpanshareexchange.TransferofBrooklynUnion'sNon-UtilitySubsidiariestoKeySpanBrooklynUnion'sprincipalnon-utilitysubsidiariescurrentlyparticipateandowninvestmentsingasando'xplorationandproduction,gaspipelinetransportationandstorage,cogeneration,marketingandotherenergrelatedservices.AftertheKeySpanshareexchange,itisintendedthatBrooklynUnionwilltransfertoKeySpan,ortotheHoldingCompanyintheeventthattheLILCOCombinationisconsummatedpriortosuchtransfer,certain,ifnotmost,ofthesenon-utilitysubsidiariesandinvestments.BrooklynUnionmayrequestarulingfromtheInternalRevenueServicethatitmaycauseitsnon-utilitysubsidiariestobedistributedtoKeySpanfollowingtheshareexchange(andthustobecome,orbecomeownedthrough,separatesubsidiariesofKeySpan)withoutthe'recognitionofgainbyBrooklynUnion.BrooklynUnionbelievesthatitwillbeabletoderivesignificantbenefitsfromtheconsummationoftheshareexchangewhetherornottherulingisobtained.Otherthanfortheforegoingsubsidiariesandinvestments,andexceptfordividendsorotherdistributionswithrespecttoBrooklynUnioncommonstockheldby.KeySpan,itisexpectedthatBrooklynUnionwillnottransferatlessthanafairconsiderationanyofitsotherassetstoKeySpanoranyKeySpansubsidiaries.BrooklynUnionwilldevelopaccountingandotherprocedurestotheextentdeterminedtobenecessaryorappropriatetoensureseparationofutilityandnon-utilitybusinesses.See"-ThePSC'Order"below.DividendReinvestmentandStockPurchasePlanSharesofBrooklynUnioncommonstockheldinitsDividendReinvestmentandStockPurchasePlan(includinguncertificatedwholeandfractionalshares)willautomaticallybecomealikenumberofsharesofKeySpancommonstockattheeffectivetimeoftheKeySpanshareexchange.Attheeffectivetime,KeySpanwillsucceedtothePlanasineffectimmediatelypriortotheeffectivetime,andsharesofKeySpancommonstockwillbeissuedunderthePlanonandaftertheeffectivetime.KeySpanwillfileapost-effectiveamendmenttoBrooklynUnion'sregistrationstatementonFormS-3forthePlanshortlyaftertheeffectivetimeoftKeySpanexchange.
mendmentorTerminationoftheKeySpanExchangeAgreementTheBoardsofDirectorsofBrooklynUnionandKeySpanmayamendanyofthetermsoftheKeySpanExchangeAgreementatanytimebeforeorafteritsadoptionbytheholdersofBrooklynUnioncommonstockandpriortotheeffectivetime,butnosuchamendmentmay,inthesolejudgmentoftheBoardofDirectorsofBrooklynUnion,materiallyandadverselyaffecttherightsofBr'ooklynUnion'sshareholders.TheKeySpanExchangeAgreementmaybeterminatedandthe'KeySpanshareexchangeabandonedatanytimebeforeoraftertheshareholdersofBrooklynUnionadopttheKeySpanExchangeAgreement,andpriortotheeffectivetime,iftheBoardofDirectorsofBrooklynUniondetermines;initssolejudgment,thatconsummationoftheKeySpanexchangewould,foranyreason,beinadvisableornotbeinthebestinterestsofBrooklynUnionoritsshareholders.ListingofKeySpanCommonStockKeySpanisapplyingtohaveitscommonstocklistedontheNewYorkStockExchange.Itisex'pectedthatsuchlistingwillbecomeeffectiveattheeffectivetimeoftheKeySpanshareexchange.ThestockexchangetickersymbolofKeySpancommonstockwillbe"KSE",andquotationswillbecarriedinnewspapersasthey.havebeenforBrooklynUnioncommonstock.FollowingtheKeySpanshareexchange,BrooklynUnioncommonstockwillnolongertradeandwillbedelistedandnolongerregisteredpursuanttoSection12oftheSecuritiesExchangeActof1934.BrooklynUnionCommonStockMarketPricesandDividendsjlBrooklynUnioncommonstockislistedandprincipallytradedontheNewYorkStockExchange.See"Questions&AnswersontheBrooklynUnion/LIL'COCombinationandLIPATransac'tion;SummaryofJointProxyStatement/Prospectus-ComparativeDividen'dsandMarketPrices-BrooklynUnion"'intheJointProxyStatement/ProspectusforthedividendspaidandthehighandlowsalespricesofBrooklynUnioncommonstockrthefiscalperiodsindicatedasreportedinTheWallStreetJournalasNewYorkStockExchangeCompositeransactions.IIDividendPolicyIKeySpandoesnotnow,norwillitimmediatelyaftertheKeySpanshareexchange,conductdirectlyanybusinessoperationsfromwhichitwillderiveanyrevenues.KeySpanplanstoobtainfundsforitsownoperationsfromdividendspaidtoKeySpanonthestockofitssubsidiaries,andfromsalesofsecuritiesordebtincurredbyKeySpan.DividendsonKeySpancommonstockwillinitiallydependupontheearriings,financialconditionandcapitalrequirementsofBrooklynUnion,andthedividendspaidbyBrooklynUniontoKeySpan.KeySpanpresentlyexpectstocontinueBrooklynUnion'spolicyofpayinganappropriatepercentageofearnings'oshareholders.Inthefuture,dividendsfromKeySpan'ssubsidiariesotherthanBrooklynUnionmayalsobeasourceoffundsfordividendpaymentsbyKeySpan.PaymentofdividendsonBrooklynUnioncommonstockwillcontinuetobesubjecttothepriorrightsofholdersofBrooklynUnionpreferredstock.KeySpanpresentlyexpectstopayquarterlydividendsonKeySpancommonstockatleastequaltotherate,andonapproximatelythesamescheduleas,thedividendmostrecentlydeclaredbyBrooklynUniononitscommonstock.ThequarterlydividendmostrecentlydeclaredbyBrooklynUnion'sBoardofDirectorsonBrooklynUnioncommonstockwas$.365persharepayableAugust1,1997toholdersofrecordonJuly8,1997.TheamountofdividendspaidbyBrooklynUniontoKeySpanfollowingtheKeySpanshareexchange,isexpectedtobegreaterthantheamountofdividendsKeySpanpaysonitscommonstock,sinceKeySpanwillneedfundsforitsholdingcompanyactivities.fThePSCOrdercontainsconditionsimposinglimitationsondividendpaymentsbyBrooklynUnion'oKeySpan.TheselimitationsaredesignedtoensuremaintenanceofBrooklynUnion'sfinancialstrength,itsabilityraisecapitalsufficienttofinancerequiredinvestmentinitsutilityplant,andtoprotectBrooklynUnion'sabilityprovidesafe,adequateandreliableutilityservice.Thelimitationsareasfollows:(I)BrooklynUnion'slevel ofdividendpaymentscannotexceed100%%uoofits'incomeavailablefordividends,calculatedonatwo-yearrollinaveragebasis;(2)intheeventthatBrooklynUnionfailstoachievecertainservicelevelsprescribedinthePSCOrder,Brooklyn,Unionwillberequiredtoshow.cause-whyitshouldnotbeprohibitedfromincreasingthelevelofdividepd.payments;(3)intheevent.thatKeySJianhasrateddebt,andthedebtisratedordowngradedtoBBB,KeySpanwillberequiredtoshowcausetothe,PSC,whydividendsfromBrooklynUniontoKeySpanshouldnotbelimitedto75%ofincomeavailablefordividends;and(4)undercertainconditions,dividendspaidbyBrooklynUnion',toKeySpan.ma'ybelimitedto75%ofincomeavailablefordividends(calculatedonatwo-yearrollingaveragebasis),50%of,'inc'omeavailablefordividends(calculatedonatwo-yearrollingaveragebasis)orsuspended;intheeventofadowngradeofBrooklynUnion'sseniordebtsecuritiesbyatleasttwoofthefollowingcreditratingagencies:Standard&Poor'sRatingGroup,Moody'sInvestorsServiceandFitchInvestorsServiceL.P.InconnectionwiththeproposedLILCOCombination,BrooklynUnionandLILCOhavefiledapetitionwiththePSCrequesting,amongotherthings,theremovalorrelaxationofcertainoftherestrictionsdescribedherein.ThePSChasnotacteduponsuchpetitionasofthedateofthisJointProxyStatement/Prospectus,andtherecanbenoassurancethatanyorallofthereliefrequestedinthepetitionwillbegranted."''nderthe'BrooklynUnion/LILCOAgreemenf,KeySpanwillberestrictedin,amongotherthings,itsabilitytopayextraordinarydividends.Seepages79to80oftheJointProxyStatement/Prospectus.1!II1IThefollowingtablesummarizesthedowngradeeventswithrespecttoBrooklynUnion'sseniordebtwhichwillcausealimitation,thenatureofthelimitation,andtheeventsthatwillleadtoremovalofthelimitation,ondividendsthatBrooklynUnioncanpaytoKeySpan:BrooklynUnionDowngradeEvent.;-,DowngradetoBBB+and,downgradeisinany-part'.;duetotheperformance,or"concernsaboutthefinancialconditionofKeySpanoranysubsidiaryofKeySpanotherthanBrooklynUnion'owngradetoBBBanddowngradeissofelydue,to,,theperformanceor,concernsaboutthe,,financialcondition;of,BrooklynUnionDowngradetoBBBand"downgradeisinanypart-due'totheperformanceor"concerns'abotttthe'inancialconditionof''KeySpanorany'subsidiaryofKeySpanothet'hin'rookly'nUnionDowngradetoBBBandratingnot,restoredtoatleastBBB+within2,yearsDowngradeto'BBB-'ot,',~$uALimitationDividendslimitedto75%ofincomeavailablefor,dividends.Dividendslimitedto75%ofincome,availablefordividends,PrDividendslimitedto50%of.incomeavailablefor'dividendsDividendssuspended~DividendssuspendedLimitationRemovedWhenpriorratingrestoredWhenpriorratingr'estoredWhenpriorrating.restoredrWhenratingrestoredtoatleastBBB+llWhenratingrestoredtoatleastBBB Theconditionsofthe.PSCOrderimposingtheselimitationswillcontinuethroughoutthetermoftheagreementthatwasapprovedbythePSCOrder,whichendsonSeptember30,.2002.However,thePSCOrderprovidesforreviewoftheagreementtodeterminewhethermodificationsareappropriate.,~hh,VCBrooklynUnion's,Standard,&,Poor'sandMoody'sunsecuredseniordebtratingsare,A,and.Al,respectively.FollowingtheannouncementoftheLILCOCombination,,Standard&Poor's,placedBrooklynUniononcreditwatchwithnegativeimplications.CertainFederalIncomeTaxConsequences'rooklynUnionandKeySpanhavereceivedanopinionfromSullivan&Cromwell,"theirspecialcounsel,that'theKeySpanshareexchangeandtheredemptionoftheBrooklynUnionpreferredstockwillhav'ethetaxconsequencesdescribedbelo'w.Theopinion'isbasedoncertainrepresentationsmadebyBrooklynUnionandKeySpan'andcertainassumptions,includingan'assumptionthatalloftheoutstandingBrooklynUnionpreferredstockwillberedeemedpriortotheconsummationofthe'KeySpanshareexchange.ThetaxconsequencesoftheKeySpanshareexchangemaybesignificantlydifferentfromthosedescribedbelowifalloftheBrooklynUnionpreferredstockisnotredeemedpriortotheexchange.fhediscussionbelowdoesnotcoverthetaxconsequencesofthe'KeySpanshareexchan'geortheredemption'ofBrooklyn'nionpreferredstockunderstate,localorforeignincomeorothertaxlaws.SHAREHOLDERSOFBROOKLYNUNIONAREURGED'TOCONSULTWITHTHEIROWNTAXADVISORSWITHRESPECTTOTHEEFFECTSOFSUCH'LAWSANDWITHRESPECTTOTHETAX*CONSEQUENCESOF'THEKEYSPANSHAREEXCHANGEIFALLOFTHEBROOKLYN'UNIONPREFERREDSTOCKISNOT'REDEEMEDPRIORTOTHEEXCHANGE.ThediscussionbelowdoesnotaddressallmaterialtaxconsequenceswithrespecttotheKeySpanshareexchangeortheredemptionofBrooklynUnionpreferredstockanddoesnottakeintoaccountthespecificcircumstancesofanyparticularinvestors(suchastax-exemptentities,certaininsurancecompanies,'roker-dealers,investorsthatholdBrooklynUnionstockasotherthanacapitalassetoraspartofastraddleorahedgingrconversiontransaction,orinvestorswhosefunctionalcurrency.isnottheU.S.dollar),someofwhichmaybesubjectto~specialrules.ThesummaryonlyaddressesaholderofBrooklynUnionstockthatis(i)acitizenorresidentoftheU.S.,(ii)acorporationorganizedunderthelawsoftheU.S.,oranystate,or(iii)otherwisesubjectto'U.S.federal'ncometaxationonanetincomebasisinrespectofitsBrooklynUnionstock;r,TI'fSKeySpanShaieExchange',IIThe.materialfederalincome.taxconsequencesoftheKeySpanshareexchangeareasfollows:(1)nogainorlosswillberecognizedbyaholderofBrooklynUnioncommonstockupontheexchangesolelyofsuchholder'sBrooklynUnioncommonstocksolelyforKeySpancommonstock;(2)thebasisofsharesofKeySpancommonstockreceivedordeemedreceivedby,aformerholderofsharesofBrooklynUnioncommonstockinanexchangedescribedin(1)aboveintheaggregatewillequal"thebasis'ofsuchformerholder'ssharesofBrooklynUnioncommonstocksoactuallyordeemed'exchanged,aridth'eholding'eriod'forsuchsharesofKeySpancommonstockwillincludetheholding'eriod'ofthesharesofBrooklynUnioncommonstocKsoactuallyor'deemedexchangedtotheextentthatsuchsharesofBrooklynUnioncommonstockwere'heldasacapitalassetattheeffectivetimeofthe.KeySpanshareexchange;(3)nogain.orloss,will.berecognizedbyKeySpanorBrooklynUniononaccountoftheKeySpanshareexchangeortheissuanceofsharesof,KeySpancommonstocktotheformerholdersofsharesofBrooklyn,UnioncommonstockpursuanttotheKeySpanExchangeAgreement;and(4)theconsummationoftheKeySpanshareexchan'gewillnotresultintheterminationoftheexistence.,oftheaffiliatedgroupofcorporationsofwhichBrooklynUnionhasbeenthe.commonparent,andBrooklyneUnionwillbeincludedinsuchaffiliatedgroupofcorporationsofwhichKeySpanwillbecomethe,new,commonparent.)y'I ShareholdersofBrooklynUnionwillberequiredtoattachtotheirincometaxreturnsacompletestatemenofallthefactsrelatingtotheKeySpanshareexchange.Thefactstobedisclosedincludetheshareholder'sbasisinthesharesofBrooklynUnioncommonstocktransferredtoKeySpanandthenatureandamountofsharesofKeySpancommonstockreceivedintheKeySpanshareexchange.ShareholdersofBrooklynUnionwillalsoberequiredtokeeppermanentrecordsofanyinformatidnrelatingtotheKeySpanshareexchangethatisrequiredtobefiledwiththeirincometaxreturns.RedemptionofPreferredStockExcepttotheextentdescribedintheparagraphbelow,aholderofBrooklynUnionpreferredstockwillrecognize'ainorlossforfederalincometaxpurposesinanamountequaltothedifferencebetweenthecashreceiveduponredemptionanditstaxbasisinsuchBrooklynUnionpreferredstock.Suchgainorlosswillbecapitalgainorlossandwillbelong-termcapitalgainorlossifsuchshareholderhashelditsBrooklynUnionpreferredstockformorethanoneyearatthetimesuchstockisredeemed.AholderofBrooklynUnionpreferredstockwhoalsoownssharesofBrooklynUnioncommonstockmaynot,beabletorecognizelossontheredemptionofitspreferredstockiftheKeySpanshareexchangeandtheredemptionofBrooklynUnionpreferredstockwereregardedasintegratedstepsinarelatedtransaction.PERSONSWHOAREHOLDERSOFBOTHSHARESOFBROOKLYNUNIONCOMMONSTOCKANDSHARESOFBROOKLYNUNIONPREFERREDSTOCKSHOULD,THEREFORE,CONSULTWITHTHEIROWNTAXADVISORSASTOTHEFEDERALINCOMETAXCONSEQUENCESTOTHEMOFTHEREDEMPTIONOFTHEIRBROOKLYNUNIONPREFERREDSTOCK.BrooklynUnionEmployeePlansETheKeySpanExchangeAgreementprovidesthatBrooklyn,Union'sEmployeeSavingsPlan,DiscountStockPurchasePlanforEmployees,andLong-TermPerformanceIncentiveCompensationPlan(together,th"BrooklynUnionStockPlans"),alongwithotheremployeebenefitplansmaintainedbyBrooklynUnion(collectivelywiththeBrooklynUnionStockPlans,the"BrooklynUnionEmployeePlans"),suchasthedefinedbenefitanddefinedcontributionpensionplans,healthplansanddisabilityplans,willbeamendedtoprovide'forKeySpantakingoverresponsibilityforsuchPlansuponconsummationoftheKeySpanshareexchange.TheBrooklynUnionStockPlanswerepreviouslyapprovedbyBrooklynUnionshareholders.AftertheconsummationoftheKeySpanshareexchange,KeySpanwillassumesuchplansbutmayfurtheramend,suspend,revokeorterminatesuchplans.See"-StockandBenefit-Plans"intheJointProxyStatement/Prospectus.StockBasedP1ans/IftheKeySpanshareexchangeisconsummated,sharesofBrooklynUnioncommonstockthenheldundertheBrooklynUnionStockPlanswillautomaticallybecomealikenumberofsharesofKeySpancommonstock.Also,theBrooklynUnionStockPlansasthenamendedwillprovideforsharesofKeySpancommonstock,insteadofBrooklynUnioncommonstock,beingissuedanddeliveredinthefutureundersuchPlans.UponconsummationoftheKeySpanshareexchange,alloutstandingstockoptionsunderBrooklynUnion'sLong-TermPerformanceIncentiveCompensationPlanwillbeconvertedintooptionstoacquire,onthesametermsandconditionsaswereapplicableundersuchstockoptionsimmediately'riortotheshareexchange,suchnumberofsharesofKeySpancommonstockastheholdersofsuchoptionswouldhavebeenentitledtoreceivepursuanttotheKeySpanshareexchangehadsuchholdersexercisedsuchstockoptionsinfullimmediatelypriortotheKeySpanshareexchange,atapricepersharebfKeySpancommonstockequaltothepershareoptionpriceofBrooklynUnioncommonstock.KeySpanwillissuefutureoptionsonitscommonstockundersuchPlaInaddition,PerformanceSharesgrantedandtobegrantedundersuchPlanwillbetreatedinacomparabl armer.KeySpanwillfilepost-effectiveamendmentstoBrooklynUnion'sregistrationstatementson'FormS-8fortheamendedBrooklyn,UnionStockPlansshortlyaftertheeffectivetimeoftheKeySpanshareexchange.Non-StockBasedPlansW1I...'ponconsummationoftheKeySpanshareexchange,KeySpanwilltake'overresponsibility,fot;allofBrooklyn.Union'sretirementandotheremployeebenefitplans,such.asthedefinedbenefitand,definedcontributionpensionplans,healthplansanddisabilityplans.Benefitsprovidedforinthesenon-,stockbasedplanswillnotbechangedasaresultoftheholdingcompanyrestructuringandKeySpanshareexchange.'IRedemptionofBrooklyn,UnionPreferredStock;,,~TheKeySpanshareexchangeisconditionedontheredemptionofallBrooklynUnionpreferredstock'afterthevotebyBrooklynUnioncommonshareholdersandbeforetheconsummationoftheshareexchange.HoldersofBrooklynUnionpreferredstockwillnotbecomeholdersofKeySpanpreferredorcommonstockasaresultoftheKeySpanshareexchange.Underthetermsofthepreferredstock,thenoticeofredemptionmustbemailedatleast30dayspriortotheredemptiondate.BrooklynUnionintendstoconsummatetheKeySpanshareexchange'aftertheredemption'date.AnoticeofredemptionwillbesenttoholdersofBrooklynUnionpreferredstockpromptlyaftertheBrooklynUnionMeeting,assumingthatshareholdersvotetoapprovetheholdingcompanyproposal.Thenoticeofredemptionwillincludeinstructionsforholdersofpreferredstocktofollowinsurrenderingtheircertificatesevidencingsuchstocktoreceivetheredemptionpriceinpaymenttherefor.IIt1+KeySpanCapitalStock'""'incetheKeySpaiiExchangeAgreementisconditionedonKeySpan'srestatedcertificateofincorporationb'eiiigfilepriortotheKeySpanshareexchangewiththeNekYorkDepartriientofState,avotebyBrooklynUnionconimon'hareholdersforadoptionof'the"KeySpan'xchangeAgreement'willconstituteapprovalofeySpan'srestated.certificatofincorporation'andby-laws.'heKeySpanrestatedcertificatofincoiporation''dby-lawswillgoveriicertainrights'ofKeySpansshareholdersaftertheKeySpanshareexchangeasdiscussedunder'hiscaptionandun'der"-ComparativeShareholders'ights"below.'ThefollowingstatementswithrespecttoKeySpancommonstockarebasedoncertainprovisionsofKeySpansrestated'certificatofincorporationand"by-'laws",''astobein'effect'asof'heeffectivetimeoftheKeySpanshareexchange."Acop'yofKeySpan'srestatedcertificateofincorpo'rationandby-lawssub'stantiallyinthe'formtob'eiiieffectatthe'effectivetim'eoftheKeySpanshareexchange,areattachedasAnnexLheretoandareinco'rporatedhe'reinbyreference.EI">>KeySphnisauthorizedtoissue210,000,000sharesofcommonstockand10,000,000sharesofpreferredstock.KeySpanpreferredstockmaybeissuedfromtimetotimeinseries.asKeySpan'sBo'ardofDirectorsmaydetermine,andtherespectivedividendrates,redemptionterms(ifany),amounts'payableon'liquidation,:votingrights(ifany),numberofvotespershare,conversionrights(ifany),andothertermswillbefixedbyKeySpan'sBoardofDirectorswithrespecttoanysuchseriespriortoissuance.""'Whenissuedinthe'KeySpanshareexchange',shar'e'sofKeySpancommon'tockwill'be'fullypaidandnonassessable.HoldersofKeySpancommonstockandpreferredstockaienotentitledtopreeniptiverights.-aiI>ih1V.Diyidends,.SubjecttopriorrightsofKeySpanpreferredstock(ifanyshouldbecomeoutstanding),KeySpancommonstockisentitledtosuchdiv'idendsasmaybedeclaredbyKeySpan'sBoardofDirectors,andKeySpanmaypurchaseorotherwiseacquireoutstandingsharesofcommonstock,outoffundslegallyavailabletherefor.,Assummarizedabove,thePSCOrderand.theBrooklynUnion/LILCOAgreementimpose'certainmitationsonthedividendsthatBrooklynUnionmaypaytoKeySpan.aftertheshareexchange.See
"-DividendPolicy."AtleastinitiallyaftertheKeySpanexchange,dividendsonKeySpancommonstockwilldependondividendspaidbyBrooklynUniononitscommonstockownedby.KeySpan.LiquidationRights'ponliquidationofKeySpan,anynetassetsremainingafterpayment.totheholders(ifany)ofKeySpanpreferredstockofthefullamountstowhichthey,areentitledtoreceivearedistributableproratatotheholdersofKeySpancommonstock.VotingRightsIIHoldersofKeySpancommonstockareentitledtoonevotepershare.There'arenocumulativevotingrights.KeySpan'sBoardofDirectorsisdividedintothreeclasses,withdirectorselectedgenerallytoservefortermsofthreeyears.'TransferAgentandRegistrarjThetransferagentandregistrarforKeySpancommonstockwillbeFirstChicagoTrustCompany.ofNewYork,JerseyCity,NewJersey.I'ndemnificationandLimitationofLiabilityAsdotheBrooklynUnionby-laws,theKeySpanby-lawswillprovidethatKeySpanshallindemnifytothefullextentpermittedbylawanypersonmade,orthreatenedtobemade,apartytoanyaction,,suitorproceeding,whethercivil,criminal,administrativeorinvestigative,by.reasonofthefactthatsuchpersonorsuchperson'testatororintestateisorwasadirector,officeroremployeeofKeySpan,.orservesorservedattherequestofKeySpanwithanyotherenterpriseasadirector,officeroremployee;expensesincurredbyanysuchpersonindefendinganysuchaction,suitorproceedingwillbepaidorreimbursedbyKeySpanpromptlyuponreceiptbyitofanundertakingofsuchpersontorepaysuchexpensesifitshallultimatelybedeterminedthatsuchpersoisnotentitledtobeindemnifiedbyKeySpan.Noamendmentofthisby-lawprovisionwillimpairtherightsofanypersonarisingatanytimewithrespecttoeventsoccurringpriortosuchamendment.t'sdoesBrooklynUnion'scertificateofincorporation,KeySpan'srestatedcertificateofincorporationwillprovidethatnodirectorshallhavepersonalliabilitytoKeySpanoritsshareholdersfordamagesforanybreachofdutyinsuchcapacity,exceptfortheliabilityforactsoromissionsinbadfaithorinvolvingintentionalmisconductoraknowingviolationoflaw,orifheorshepersonallygainedinfactafinancialprofitorotheradvantagetowhichheorshewasnotlegallyentitledorifsuchactviolatedSection719oftheNewYorkBusinessCorporationLaw.Anyamendmentorrepealofsuchliabilitylimitationprovisionmaynotapplytoorhaveanyeffectontheliabilityorallegedliabilityofanydirectorfororwithrespecttoanyactsoromissionsofsuchdirector,occurringpriortosuchamendmentorrepeal.PossibleEgectofCertainKeySpanProvisionsandtheNeiv'YorkLaiv.Itisnottheintentionofthe.BoardofDirectorstodiscouragelegitimateofferstoenhanceshareholderyalue.However,certainprovisionsoftheKeySpan'srestatedcertificate,ofincorporationandby-lawsmayhavetheeffectofdiscouragingunilateraltenderoffersorotherattemptstotakeoverandacquirethebusinessofKeySpan.Theseprovisions,manyofwhicharepresentlycontainedinBrooklynUnion'scertificateofincorporationorby-lawsorotherwiseapplytoBrooklynUnion,mightdiscourageapotentiallyinterestedpurchaserfromattemptingaunilateraltakeoverbidforKeySpanontermswhichsomeshareholdersmightfavor.Iftheydiscouragepotentialtakeoverbids,theseprovisionsmightlimittheopportunityforKeySpan'sshareholderstoselltheirsharesatapremiumoverthenprevailingmarketprices.SNon-CumulativeVoting.NeitherBrooklynUnionnorKeySpanprovidesforcumulativevoting,inthelectionofdirectors.Theprocedureknownascumulativevotingpermitsshareholderstomultiplythenumbero votestowhichtheymaybeentitledbythetotalnumberofdirectorstobeelectedinthesameelectionbytheholdersoftheclassorclassesofsharesofwhichtheirsharesareapartandtocasttheirwholenumberofvotesforonecandidateortodistributethemamonganytwoormorecandidates.Undercumulativevoting,itispossibleforrepresentationontheBoardofDirectorstobeobtainedbyanindividualorgroupofindividualswhoownlessthanamajorityofthevotingstock.Suchashareholderorgroupmayhaveinterestsandgoalswhicharenotconsistentwith,andindeedmightbeinconflictwith,thoseofamajorityoftheshareholders.TheBoardofDirectorsbelievesthateachdirectorshouldrepresentallshareholders,ratherthantheinterestsofanyspecialconstituency,andthatthepresenceonKeySpan'sBoardofoneormoredirectorsrepresentingsuchaconstituencycoulddisruptandimpairtheefficientmanagementofKeySpan.ThelackofcumulativevotingcoulddiscouragetheaccumulationofblocksofKeySpancommonstockandthereforecouldtendtomaketemporaryincreasesinthemarketpriceofKeySpancommonstock,whichcouldresulttherefrom,lesslikelytooccur.Therefore,intheselimitedinstances,shareholdersmaynotbeabletoselltheirsharesofKeySpancommonstockatamarketpricetemporarilyinfluencedbythistypeofactivity.AdvanceNoticeofBusinesstobeBroughtBeforeShareliolderMeetings.AsunderBrooklynUnion'sby-laws,underKeySpan'sby-lawsshareholdersmustprovideKeySpanpriorwrittennoticeofanybusinesstobebroughtbeforeanannualorspecialmeeting(includingthenominationofdirectors)inorderforittobeconsidered.Withrespecttoanyannualmeeting,suchby-lawsrequirethewrittennoticetobereceivedbytheSecretaryofKeySpannoearlierthan90daysnorlaterthan60dayspriortothefirstanniversaryoftheprecedingyear'sannualmeeting,exceptthatifthedateoftheannualmeetingismorethan30daysbeforeormorethan60days'aftersuchanniversarydate,suchby-lawsrequirethewrittennoticetobereceivedbytheSecretaryofKeySpannoearlierthan90daysnorlaterthanthelaterof60dayspriortothedateof,or10daysafterthepublicannouncementof,suchannualmeeting.Withrespecttoanyspecialmeeting,suchby-lawsrequirethewrittennoticetobereceivedbytheSecretaryofKeySpannoearlierthan90norlaterthanthelaterof60dayspriorto,or10daysaftertheannouncementof,suchspecialmeeting.Theseby-lawprovisionsprovideamoreorderlyprocedureforconductingshareholdermeetingsandprovidetheBoardofDirectorswithameaningfulopportunitypriortoshareholdermeetingstoinformshareholders,totheextentdeemednecessaryordesirablebytheBoardofDirectors,ofanybusinessproposedtobeconductedatsuchmeetings,togetherwithanyrecommendationoftheBoardofDirectors.Also,byrequiringadvancenoticeofnominationsbyshareholders,theseby-lawprovisionsaffordtheBoardofDirectorsameaningfulopportunitytoconsiderthequalificationsoftheproposednomineesand,totheextentdeemednecessaryordesirablebytheBoardofDirectors,toinformshareholdersaboutsuchqualifications.Ontheotherhand,theseby-lawprovisionsmayprovidesufficienttimeforKeySpantoinstitutelitigationortakeother'stepstorespondtosuchbusiness,ortopreventsuchbusinessfrombeingactedupon,ifsuchresponseorpreventionisthoughttobenecessaryordesirable.Withrespecttotheelectingofdirectors,theseby-lawprovisionsmaytendtoinhibitshareholderswhodo'nothaveanyintentionofcontrollingKeySpanoritsBoardofDirectorsfrom'participatinginthenominationprocess;suchprovisionsmayalsoprovidesufficienttimeforKeySpantoinstitutelitigationortakeotherstepstopreventthenomineefrombeingelectedorservingifsuchpreventionisthoughttobenecessaryordesirable.*"Blank-Check"PreferredStockKeySpan'srestatedcertificateofincorporationwill,authorizetheissuanceof10,000,000sharesofKeySpanpreferredstock.Inaddition,aftergivingeffecttotheKeySpanshareexchange,approximately159,000,000sharesofKeySpancommonstockwillbeauthorizedbutunissuedandnotreservedforissuance.AneffectoftheexistenceofunissuedKeySpancommonstockandpreferredstockmaybetoenabletheKeySpanBoardofDirectorstorendermoredifficultordiscourageati'ansactiontoobtaincontrolofKeySpan.SuchsharesmightbeissuedbytheBoardofDirectorswithoutshareholderapprovalin-transactionsthatmightpreventorrendermoredifficultorcostlythecompletionofatakeovertransaction,asbydilutingvotingorotherrightsoftheproposedacquiror.Inthisregard,KeySpan'srestatedcertificateofincorporation(asdoesBrooklynUnion's)willgranttheBoardofDirectorsbroadpowertoestablishtherightsandpreferencesoftheauthorizedandunissuedpreferredstock,oneor'moreclassesorseriesofwhichcouldbeissuedentitlingolderstovoteseparatelyasaclassonanyproposedmergerorconsolidation,toconvert.suchstockintoshares ofKeySpancommonstockorpossiblyothersecurities,todemandredemptionataspecifiedpriceunderprescribedcircumstancesrelatedtoachangeofcontrol,ortoexerciseotherrightsdesignedtoimpedeatakeover.Section912oftheNewYorkBusinessCorporatiotrLaw.Section912oftheNewYorkBusinessCorporationLawwouldprohibita"businesscombination"(asdefinedinSection912,generallyincludinginergers,salesandleasesofassets,issuancesofsecuritiesandsimilartransaction's)byKeySpanorasubsidiarywithan"interestedshareholder"(asdefinedinSection912,generallythebeneficialownerof20percentormoreofKeySpan'svotingstock)withinfiveyearsafterthepersonorentitybecomesaninterestedshareholder,unless(i)priortothepersonorentitybecominganinterestedshareholder,thebusinesscombinationorthetransactionpursuanttowhichsuchpersonorentitybecameaninterestedshareholdershallh'avebeenapprovedbyKeySpan'sBoardofDirectors,or(ii)thebusinesscombinationisapprovedbytheholdersofamajorityoftheoutstandingvotingstockofKeySpan,excludingsharesheldbytheinterestedshareholder,atameetingcalledforsuchpurposenotearlierthanfiveyearsaftersuchinterestedshar'eholder'sstockacquisition-date.Section70oftheNewYorkPublicServiceLaw.UnderSection70ofthePublicServiceLaw,unlessauthorizedbythePSC,nogas'corporationorelectriccorporationmaydirectlyorindirectlyacquirethestockorbondsofanyothercorporationincorporatedfor,orengagedin,thesameorasimilarbusiness,orproposingtooperateoroperatingunderafranchisefromNewYorkStateoranyotherstateoranyothermunicipality.Ingeneral,nostockcorporationotherthanagascorporationorelectriccorporationorstreetrailroadcorporationmaypurchaseoracquire,takeorhold,morethantenpercent(10%)ofthevotingcapitalstockofanygascorporationorelectriccorporationorganizedorexistingunderorbyvirtueofthelawsofNewYorkunlesswiththeconsentof,andsubjecttothetermsandconditionssetby,thePSC.NoconsentmaybegivenbythePSCtoanysuchacquisitionunlessithasbeenshownthatsuchacquisitionisinthepublicinterest.Anycontract,assignment,transferoragreementfortransferofanystockinviolationofSection70willbevoidandofnoeffect,andnosuchtransferorassignmentmaybemadeuponthebooksofanysuchgascorporationorelectriccorporation,orwillberecognizedaseffectiveforanypurpose.A"gascorporation"isdefinedtogenerallyincludeanycorporation,company,partnershipandpersonowning,operatingormanaginganygasplant.OtherProvisions.SomeotherprovisionsofKeySpan'srestatedcertificateofincorporationandby-lawsmayalsotendtodiscouragepotentialofferstotakeoverandacquirethebusinessofKeySpan.KeySpan'sBoardofDirectorswillbedividedintothreeclasses,withdirectorsineachclassgenerallybeingelectedtoserveathree-yearterm.Also,specialshareholdermeetingsmaybecalledonlybythechairmanoftheBoardofDirectorsorbytheBoardpursuanttoaresolutionadoptedbyamajorityoftheentireBoard.KeySpan'srestatedcertificateofincorporationalsoprovidesthatdirectorsmaynotberemovedwithoutcausebytheshareholders,exceptinthecaseofadirectorelectedbytheholdersofanyclassorseriesofstock(otherthanKeySpancommonstock),votingasaclassorseries,whensoentitledbytheapplicableprovisionsofKeySpan'srestatedcertificateofincorporation.Finally,certainprovisions(relatingto,forexample,limitationondirectorliabilities,theabilitytocallspecialmeetingsofshareholders,presidingatmeetingsofshareholders,classifiedBoardofDirectors,electionandremovalofdirectors,advancenoticerequirementsforshareholderproposals,and,nominationofdirectorsatshareholdermeetings,andindemnification)mayonlybeamendedbytheaffirmativevoteofnotlessthantwo-thirdsofthesharesentitledtovoteatashareholdermeeting.BrooklynUnion'scertificateofincorporationandby-lawspresentlycontainanumberoftheseprovisions.HComparativeShareholders'ightsBrooklynUnionandKeySpanarebothNewYorkcorporations.WhentheKeySpanshareexchangebecomeseffective,holdersofBrooklynUnioncommonstock'willbecomeholdersofKeySpancommonstock,andtheirrightswillbegovernedbyKeySpan'srestatedcertificateofincorporationandby-lawsinsteadofthoseofBrooklynUnion.CertaindifferencesbetweentherightsofholdersofKeySpancommonstockandthoseofholdersof~BrooklynUnioncommonstockaresummarizedbelow.Suchsummaryisqualifiedinitsentiretybyreferenceto~
theinformationincludedintheexhibitshereto,inexhibitstotheRegistrationStatementofwhichthisJointProxyStatement/Prospectusisapart,andinmaterialsincorporatedhereinbyreference.PurposeClauseThecorporatepurposesforwhichBrooklynUnionmayengageinbusinessarethoserelatedtogas,electricityorotherformsofenergyandrelatedactivities.KeySpanisauthorizedtoengageinanyandalllawfulactsandactivities.AuthorizedSharesAuthorizedKeySpanandBrooklynUnioncommonstockis210,000,000and70,000,000shares,respectively.AsofJune,23,1997,therewere50,364,212sharesofBrooklynUnioncommonstockoutstandingand1,500,000sharesofBrooklynUnioncommonstockreservedforissuanceuponexerciseofoutstandingstockoptions.Inaddition,undertheBrooklynUnionStockOptionAgreement,BrooklynUnionhasgrantedtoLILCOanoptiontopurchase,undercertaincircumstances,upto9,948,682sharesofBrooklynUnioncommonstock.Uptoapproximately51,864,212sharesofKeySpancommonstockmaybeissuedintheKeySpanshareexchange.TheadditionalauthorizedbutunissuedsharesofKeySpancommonstockwillbeavailableforissuanceundertheDividendReinvestmentandStockPurchasePlanandtheBrooklynUnionStockPlans,aswellaspossiblyforstocksplits,stockdividends,equityfinancings,andforothergeneralcorporatepurposes(including,possibly,acquisitions),noneofwhichisundercurrentconsideration.InadditiontothecurrentlyoutstandingsharesofBrooklynUnionpreferredstock,asoftheRecordDate,therewere831,000and2,000,000authorizedbutunissuedsharesofBrooklynUnion$100preferredstockandBrooklynUnion$25preferredstock,respectively.Therewillbe10,000,000authorizedsharesofKeySpanpreferredstock,allofwhichareunissued.IPreferredStockTherespectiveBoardsofDirectorsofKeySpanandBrooklynUnionareauthorizedtoissuepreferredstockinseries.ThevotingrightsandcertainpreferencesoftheBrooklynUnionpreferredstockaredeterminedinBrooklynUnion'scertificateofincorporation.BrooklynUnionpreferredstockisgenerallynotentitledtovotebutonlyhaslimitedvotingrightsasrequiredbylawandassetoutintheBrooklynUnion'scertificateofincorporation,whichrightsgenerallyariseonlyintheeventofcertainarrearagesinpaymentofdividendsandcertaincorporatetransactionsaffectingBrooklynUnionpreferredstock.BrooklynUnionpreferredstockissubjecttoredemptionandsinkingfundprovisions.KeySpan'srestatedcertificateofincorporationwillnotestablishvotingrights,preferencesorotherrightswithrespecttoKeySpanpreferredstock.KeySpan'sBoardofDirectorsisgivenfullauthoritytoestablishanddesignateeachparticularseriesofpreferredstockandtofixtherights,preferencesandlimitationsofeachparticularseries,andtherelativerights,preferencesandlimitationsbetweenseries,asfollows:(i)theserialdesignation;(ii)thenumberofsharesinsuchseries;(iii)thedividendrateorratesandthedateordatesuponwhichsuchdividendsshallbepayable;(iv)whetherdividendsonsuchserieswillbecumulative,and,ifso,fromwhichdateordates;(v)liquidationpreferences;(vi)provisions,ifany,relatingtooptionalredemptionbyKeySpanandsinkingorothersimilarfunds;(vii)provisions,ifany,relatingtotheconversionorexchangeofsharesofsuchseriesintosharesofanyclassofstock(exceptthatconversionorexchangemaynotbemadeintoshareshavingsuperiordividendorliquidationpreferences);(viii)thevotingrights,ifany,inadditiontothoserequiredbylawandthenumberofvotespershare;and(ix)anyotherrelativerights,preferencesorlimitationsofsuchseriesnotinconsistentwithapplicablelaw.ManagementbelievesthattheabilitytoissueKeySpanpreferredstockwillprovideimportantflexibilitytoeySpan.
ParValue'TheparvalueofKeySpanpreferredstockdiffersfromthoseofBrooklynUnionpreferredstock.AdesignatedparvalueisnotrequiredundertheNewYorkBusinessCorporationLawandinmoderncorporatepracticeparvaluedoesnotserveanyusefulpurpose.ItisanticipatedthatthedifferenceinparvalueswillnotaffectthemarketvalueofKeySpanpreferredstock.TheparvaluepershareofKeySpancommonstock,$.33M,isidenticaltotheparvaluepershareofBrooklynUnioncommonstock.ClassifiedBoardJAsisthecasewithBrookfynUnion,KeySpan'srestatedcertificateofincorporation'and.by-'lawswillprovide(i)fortheBoardtodeterminethenumberofdirectors;and(ii)forthedivisionoftheBoardintothreecia'sseswithdirectorsineachclassgenerallybeingelectedforathree-yearterm.See"-Management"below.I4IIOtherProvisionsKeySpan'srestatedcertificateofincorporationwillprovidethatdirectorsmaynotberemovedwithoutcausebytheshareholders,exceptinthecaseofadirectorelectedbytheholdersofanyclassorseriesofstock(otherthanKeySpancommonstock),votingasaclassorseries,whensoentitledbytheapplicableprovisionsofKeySpan'srestatedcertificateofincorporation.Also,certainprovisions(relatingto,forexample,preferredstock,liinitationondirectorliabilities,theabilitytocallspecialmeetingsofshareholders,classifiedBoardofDirectors,electionandremovalofdirectors,"advancenoticerequirementsforshareholderproposalsandnominationofdirectorsat'shareholdermeetings)mayonlybeamendedbytheaffirmativevoteofnotless'th'antwo-thirdsofthesharesthenentitledtovoteatshareholdermeetings.OtherprovisionsofKeySpan'srestatedcertificateofincorporationorby-lawsmaybeamended,repealedoradoptedbyavoteoftheshareholdersofKeySpanatthetimeentitledtovoteatanyshareholdermeetingor,inthecaseoftheKeySpanby-laws,bytheBoardofDirecto.of.KeySpan.Seealso"-KeySpanCapitalStock".ForinformationregardingtheHoldingCompanycommonstockandpreferredstockandacomparisonofcertainshareholderrightsafter,consummationoftheLILCOCombination,see"DescriptionofHoldingCompanyCapitalStock"and"ComparisonofShareholders'ights"intheJointProxyStatement/Prospectus.IBusinessBrooklynUniondistributesnaturalgasatretail,primarilyinaterritoryofapproximately187squaremiles,whichincludestheBoroughsofBrooklynandStatenIslandandtwo-thirdsoftheBoroughofQueensinNewYorkCity.Thepopulationoftheterritoryservedisapproximately4,000,000.AsofSeptember30,1996,BrooklynUnionhadapproximately1,126,000activemeters,ofwhichapproximately1,089,000wereresidential.BrooklynUnionissubjecttotheregulatoryjurisdictionofthePSC.AftertheKeySpanshareexchange,BrooklynUnionwillcontinuetocarryonitscurrentutilitybusinessasasubsidiaryofKeySpan.BrooklynUnion'sprincipalnon-utilitysubsidiariescurrentlyparticipateandowninvestmentsingasandoilexplorationandproduction,gaspipelinetransportationandstorage,cogeneration,marketingandotherenergy-relatedservices.Itisanticipatedthatcertain,ifnotall,ofthesesubsidiarieseventuallywillbecomeseparatesubsidiariesofKeySpanaftertheKeySpanshareexchange.OnSeptember20,1996,BrooklynUnionsoldinaninitialpublicofferingapproximately34%ofitsinterestinTheHoustonExplorationCompany("THEC").THECisanaturalgasandoilexplorationandproductiocompanywithprovenreservesofapproximately320billioncubicfeetofnaturalgas.
t~'ImmediatelyaftertheKeySpansh'areexchangeoccurs,KeySpanwillhaveno'materialassetsotherthanitsdirect'owneiship'ofallofBrooklynUnion'soutstandingcommonstockanditsindirectownershipofallofthecommonstockofBrooklynUnion'sexistingnon-utilitysubsidiaries.See-"-TransferofBrooklynUnion'sNon-"UtilitySubsidiariestoKeySpan."Itisexpectedthat,inthefuture,KeySpanwillexpandintosomeotherbusinessesandventures.ForfurtherinformationregardingBrooklynUnion'snon-utilitysubsidiaries,seeNotes3,7,'and10tothe,1'996ConsolidatedFinancialStatementsand"Management'sDiscussionandAnalysisofFinancialConditionandResultsofOperations",in,BrooklynUnion'sProxyStatementdatedDecember30,1996foritsannual'ineetingofsliareholdersIteldon'February'6,1997.FinancialandadditionalinfoimationregardingBrooklyn,Unionisalso'includedintheJointProxyStatement/Prospectus.'sFor.'informationregardingLILCO'sbusinessandcondition,see"SelectedInformationConcerningBrooklynUnionandLILCO"andtheUnauditedProFormaCombinedConsolidatedandCondensedFinaricialStatemenis"includedintheJointProxyStatement/Prospectus,andthe-financialandadditional'nformationr'egarding"L'ILCOincorporatedbyreferencethereinaslist'edunder"Where'YouCanFindMoreInform'ation".,in'he'ointProxyStatement/Prospectus.'USllhRepilatIonofKeySpanandBrooklynUnionl't4NRegulationofKeySpan'l'4KeySp'anmustcomplywiththePSCOrder'.Asdiscussedandrefe'rredtobelowurider"-ThePSCOrder",therearerestrictionsonKeySpan'sinvestments,transactionsbetweenBrooklynUnionandKeySpanandotherKeySpansubsidiaries,restrictionsonloans,guaranteesorpledgesforthebenefitofKeySpanand,otherKeySpan,subsidiaries,andrestrictionsonBoardandmanagerialinterlocksbetweenBrooklynUnion"andKeySpanandotherKeySpansubsidiaries.InconnectionwiththeproposedLILCOCombination,BrooklynUnionandLILCOhavefiledapetitionwiththe"PSCrequesting,amongotherthings,theremovalorrelaxationofcertainoftherestrictions'describedherein.ThePSChasnotacteduponsuchpetitionasofthedateofthisJointProxyStatement/Prospectus,andtherecanbenoassurancethatanyorallofthereliefrequestedinthepetttionwillbegranted.AsaresultoftheKeySpanshareexchange,KeySpanwillbecomea"publicutilityholdingcompany"undertheHoldingCompanyAct.Simultaneouslywiththeeffectivenessoftheshareexchange,KeySpanwill.filewiththeSECanexemptionstatementto'xemptitselfanditssubsidiariesfromallprovisionsoftheHoldingCompanyA'ctlexceptwithrespect"tocertain'acquisitionsandinvestments)pursuanttothe"intrastate"exemptionifiSection3(a)(1)ofthatAct.Tomaintainthisex'emptiori,KeySpanmustfileastatementeachyearpriortoMarch1withtheSEC.TheSEChasautho'rityundertheHolding'ompanyA'cttochallengetheavailabilityofKeySpan'sexemption.IIKeySpanbelievesthatitwillbeexemptfromallprovisionsoftheHoldingCompanyActexceptSectio'n9(a)(2)'.'Section9(a)(2)requiresSECapprovalofthedirectorindirectacquisitionbyKeySpanoffivepercent(5%)ormoreofthe-voting'securitiesofanyotherpublicutilitycompany.Therearealsopresentlylimitsontheextenttowhich'Ke'ySpanand'tsnon-utilitysubsidiariescanenterinto'usinesseswhicharenot"functionallyrelated"tothepublicutility'usines's''without'raisingpotentialissuesabout'KeySpan'sexempts'tatus.SECpoliciesregarding'the'scopeofpermissiblenon-utilityactivitiesofapublicutilityholdingcompanyaresubject'tochange,but'ndercurrentlawKeySpanwouldberequiredtoremainengagedprimarily"-andpredominantlyinthepublicutilitybusinesswhichcouldlimitotheractivitiesinwhichKeySpanmightwishtoengage.p'4RegulationofBrooklynUnionBrooklynUnionwillcontinuetobesubjecttoregulationby"thePSC;aftertheKeySpanshareexchange..BrooklynUnion'sutilityretailsales,whichincludesalesofgas,transportationandbalancingservices,willJ-K continuetobemadeprimarilyunderrateschedulesandtariffsfiledwithandsubjecttothejurisdiction'ofthePSC.See"-NewRatePlanofBrooklynUnion"below.Inaddition,BrooklynUnionwillcontinuetobesubjecttoregulationbythePSC,asithasbeeninthepast,regarding,issuancesofsecurities,capitalratio..maintenance,andthemaintenanceofitsbooksandrecords.fhIThePSCOrderNon-UtilityCapitalLimits*UnlessotherwiseapprovedbythePSCduringthetermofthePSCOrder,KeySpanmay"'onlyinvestinthefollowingcategoriesofnon-utilitybusinesses(the"ComplyingInvestments"):(i)energy-relatedbusinesses;(ii)businessesprovidingwater,environmentalandtechnicalservices;(iii)telecommunications'businesses;(iv)businessesthatoperateprimarily,withinBrooklynUnion'sserviceareaandcontributetotheeconomyofthatareathroughsuchmeansassignificantincreasedemploymentandimprovementofhousingstock;and(v)financialservicesbusinesses.Inaddition,KeySpan'sinvestmentinnon-utilitybusinesseswillbelimitedtoapercentageofKeySpan'sTotalCapital:startingat35%forfiscalyear1997,andincreasingat.arateoffivpercentagepointsperyearuntilreaching50%forfiscalyear2000andthereafter.BrooklynUnion'sinvestmentsinthelinesofbusinessdescribedin(iv)and(v)abovewillbelimitedtoanaggregatefivepercent(5%)ofKeySpan'sTotalCapitalovertheentiretermofthePSCOrder."TotalCapital"referstothesumofanentity'scommonshareholders'quity,preferredstock,longtermdebt(includingnotespayable),butdoesnotinclude'nycashorcashequivalentsappearingontheentity'sconsolidatedbalancesheets.Theincreasesininvestmentauthoritydetailedabovewillnotoccuriftherehasbeen.amaterialviolationofthePSCOrder,asdeterminedbythePSC.If'(i)KeySpanoritssubsidiariesinvestinoracquireautilitycompanyorComplyingInvestment,(ii)aportionoftheactivitiesofsuchacquiredentityarenon-ComplyingInvestments,and(iii)allsuchnon-ComplyingInvestmentsintheaggregateamounttomoiethanonepercent(1%)oftheassetsofKeySpan,thenKeySpanorthesubsidiariesowningsuchnon-ComplyingInvestmentsmustdivestitselforthemselvesofsuchinvestmentswithinatwo-yearperiod.ProhibitionsofAfhliateLoans,GuaranteesandPledgesUnderthePSCOrder,BrooklynUnionisprohibitedfrommakingloansto,orpr'ovidingguaranteesorother.creditsupportfortheobligationsof,KeySpanoranyothersubsidiaryofKeySpan.Likewise,BrooklynUnionmaynotpledgeitsassetsfortheobligationsofanyotherentity,includingKeySpanoranyothersubsidiaryofKeySpan.Finally,KeySpanmaynotpledgethedividends,revenuesorreceivablesreceivedorexpectedfromBrooklynUnionoxanyothersubsidiarytosupportitsobligations.VProhibitionsofAffiliateTransactionsandOtherRestrictionsThePSCOrdergenerallyprohibitsanytransactionbetweenBrooklynUnionandKeySpanorany.othersubsidiaryofKeySpan,exceptfortheprovisionofcertaincorporateadministrativeservices,certain"grandfathered"transactionsaslistedtherein,transactionspermittedasamatterofgenericpolicybythePSC,andtariffedtransactions.Inaddition,KeySpananditssubsidiariesarerequiredbythePSCOrdertooperateasseparateentities,andthePSCOrderprescribescapitalratiomaintenancerequirementsforBrooklynUnion.Finally,thePSCOrdersetsoutguidelinesfortheallocationofcostsamongKeySpan,BrooklynUnionandtheothersubsidiariesofKeySpan.RestrictionsonBoardandManagementInterlocksInordertoaddressconcernsregardingthepossiblediversionoftheattentionofBrooklynUnion'smanagementaway,fromtheutilitybusiness,aswellastoavoidpotentialconflictsofinterestwiththemanagementofKeySpan,thePSCOrdercontainsrestrictionsregardingthecompositionoftheBoardsand emanagementsofBrooklynUnionandKeySpanandothersubsidiariesofKeySpan.See"-Management-Restrictions'onBoardandManagementInterlocksbetweenKeySpanandBrooklynUnion."InconnectionwiththeproposedLILCO'Combination,BrooklynUnionandLILCOhavefiledapetitionwiththePSCrequesting,amongotherthings,theremovalorrelaxationofcertainoftherestrictionsdescribedherein.ThePSChasnotacteduponsuchpetitionas"ofthedateofthisJointProxyStatement/Prospectus,andtherecanbenoassurancethatanyorallofthereliefrequestedinthepetitionwillbegranted.hNewRatePlanofBrooklynUnionThePSCOrderincludesanewrateplanthattookeffectonOctober,1,1996andwillremainineffectuntilSeptember30,2002.Infiscal1997,thenon-gascomponentincustomerbillswillbereducedbyatleast$3million,withsubsequentbillssubjecttospecificpricecaiisthroughSeptember30,2002.Hence,the,non-gascost.componentofcustomerrates,intheaggregate,willremainconstantforthesubsequentfiveyears;however,rates,tocertaincustomerclassesmayincreaseinordertorefiectmoreappropriatelytheirrespectivecostresponsibilities.BrooklynUnionalsowillbeabletochargeforvariousancillaryservices.ThenewrateplanessentiallyfreezesBrooklynUnion'sdistributionratesforsixyears,butatthesametime,containsanumberofprovisionsdesignedtomaximizeBrooklynUnion'soverallearningsandprotectBrooklynUnion'sfinancialcondition.ThereisnospecificauthorizedrateofreturnoncommonequityandBrooklynUniongenerallyisnotsubjecttoanyearningscap.Inaddition,BrooklynUniongenerallyisnotrequiredtosharewithcustomersanylevelofearningsorcostsavingsrelatedtoutilityoperations,However,incentiveprovisionsremainfortheretentionof20%ofnetrevenuesfromoff-systemtransactions,aswellasincentivesrelatedtototalexpendituresrelatedtoinvestigationandremediationofthesitesofformermanufacturedgasplantfacilities.Theplanalsocontainsprovisionsforrateadjustmentstiedtothelevelofinfiation,exogenouscostsorBrooklynUnion'sfinancialcondition.tTherateplaitalsoprovidesBrooklynUnionwithsubstantialpricingflexibilitytoenhanceitsabilitytocompeteagainstalternativefuelsources(primarilyfueloil)inpriceelasticfirmmarkets,andto"unbundle"thecostofcertainservicesfrombaseratestoensurethatonlythecustomersthatusethoseservicesliavetopayforthem.ItalsoincludesmechanismstoallowBrooklynUniontosetpricesforcertaincustomersegmentsdesignedfopricegascompetitivelywithalternativesourcesofenergy.TherateplanwillcontinuetogovernBrooklynUnion'sutilityratesandchargesevenifcommonshareholdersdonotapprovetheholdingcompanyproposalandadoptth'eKeySpanExchangeAgreementatBrooklynUnion'sSpecialMeeting.Inthatevent,BrooklynUnionwillnotbeable"torealizethebenefitsitexpectsfromaholdingcompanystructure,whichitbelievesisnecessaryinthefuture'deregulatedcompetitiveenvironmentoftheenergyindustry.AlStatutoryAppraisalRightsSection910oftheNYBCLsetsforththerightsofshareholdersofBrooklynUnionwhoobjecttotheadoptionoftheKeySpanshareexchangeagreement.AnyrecordholderofBrooklynUnionCo'mmon'StockasoftherecorddatewhodoesnotvoteinfavoroftheadoptionoftheKeySpanExchangeAgreement,orwhodulyrevokeshisorhervoteinfavoroftheadoptionoftheKeySpanExchangeAgreement,may,iftheKeySpanshareexchangeisconsummated,obtainpayment,incash,forthefairmarketvalueofsuchholder'ssharesbystrictlycomplyingwiththerequirementsofSection623oftheNYBCL.InasmuchasBrooklynUnionpreferredstockisnotbeingexchangedandwillberedeemedpursuanttotheirtermsimmediatelypriortotheconsummationoftheKeySpanshareexchange,theholdersofthatstockdonothavestatutoryappraisalrights.ThefollowingsummaryoftheapplicableprovisionsofSections623and910isnotintendedtobeacomplete'tatementofsuchprovisions,andisqualifiedinitsentiretybyreferencetothefulltextofSections623and910,copiesofwhicheareattachedtothisJointProxyStatement/ProspectusasAnnexI.ApersonhavingabeneficialinterestinsharesofBrooklynUnioncommonstockthatareheldofrecordinthenameofanotherperson, suchasabrokerornominee,mustactpromptlytocausetherecordholdertofollowthestepssummarizedbelowproperlyandinatimelymannertoperfectwhateverappraisalrightsthebeneficialownermayhave.THISSUMMARYANDANNEXISHOULDBEREVIEWEDCAREFULLYBYANYCOMMONSHAREHOLDEROFBROOKLYNUNIONWHOWISHESTOEXERCISESTATUTORYAPPRAISALRIGHTSORWHOWISHESTOPRESERVETHERIGHTTODOSOBECAUSEFAILURETOSTRICTLYCOMPLYWITHANYOFTHEPROCEDURALREQUIREMENTSOFSECTION623ORSECTION910MAYRESULTINATERMINATIONORWAIVEROFAPPRAISALRIGHTSUNDERSECTION623ANDSECTION910.ThedissentingBrooklynUnionshareholdermustfilewithBrooklynUnionbeforethetakingofthevoteontheadoptionoftheKeySpanExchangeAgreementawrittenobjectionincludinganoticeofelectiontodissent,suchholder'snameandresidenceaddress,thenumberandclassofshares(BrooklynUnioncommonstock)astowhichsuchholderdissents(whichnumbermaynotbelessthanall'ofthesharesastowhichsuchholderhastherighttodissent)andademandforpaymentofthefairvalueofsuchsharesiftheKeySpanshareexchangeisconsummated.Anysuchwrittenobjectionshouldbeaddressedto:TheBrooklynUnionGasCompany,OneMetroTechCenter,Brooklyn,NewYork11201-3851,Attention:Secretary.4ForpurposesofperfectingappraisalrightspursuanttoSection623,thewrittenobjectionofa'olderofsharesofBrooklynUnioncommonstockwhichisaddressedasprovidedaboveshallbedeemedfiledwithBrooklynUnionuponreceiptofsuchobjectionbyBrooldynUnion.NeithervotingagainstnorfailuretovotefortheKeySpanExchangeAgreementwillconstitutethewrittenobjectionrequiredtobefiledbyanobjectingshareholder.FailuretovoteagainsttheKeySpanExchangeAgreement,however,willnotconstituteawaiverofrightsu'nderSections623and910;Iirovidedthatawrittenobjectionhasbeenproperlyfiled.AshareholdervotingtoadopttheKeySpanExchangeAgreementwillbedeemedtohavewaivedsuchshareholder'sappraisalrights.,AshareholdermaynotdissentastolessthanallthesharesofBrooklynUnioncommonstockheldofrecord~thatsuchholderbeneficiallyowns.Anomineeorfiduciarymaynotdissentonbehalfofanybeneficialowneras~tolessthanallthesharesofBrooklynUnioncommonstockofsuchbeneficialowner,astowhichsuchnomineeorfiduciaryhasarighttodissent,heldofrecordbysuchnomineeorfiduciary.Furthermore,ifthesharesofBrooklynUnioncommonstockareownedofrecordinafiduciarycapacity,suchasbyatruste'e,guardianorcustodian,thedemandmustbemadeinthatcapacity,andifthesharesofBrooklynUnioncommonstockareownedofrecordbymorethanoneperson,asinajointtenancyortenancyincommon,thedemandmustbemadebyorforallownersofrecord.Anauthorizedagent,includingoneoftwoormorejointowners,mayexecutethedemandforappraisalforaholderofrecord;however,suchagentmustidentifytherecordownerorownersandexpresslystateinsuchdemandthattheagentisactingasagentfortherecordownerorownersofsuchsharesofBrooklynUnioncommonstock.Arecordholder,suchasabrokeroranagent,whoholdssharesofBrooklynUnioncommonstockasanomineeforbeneficialowners,someofwhomdesiretodemandappraisal,mustexerciseappraisalrightsonbehalfofsuchbeneficial'ownerswhodesiretodemandappraisalwithrespecttothesharesofBrooklynUnioncommonstockheldforsuchbeneficialowners.WithintendaysafterthevoteofBrooklynUnionshareholdersauthorizingtheadoptionoftheKeySpanExchangeAgreement,BrooklynUnionorKeySpan,asthecasemaybe,mustgivewrittennoticeofsuchauthorizationtoeachdissentingBrooklynUnionshareholder.Atthetimeoffilinganoticeofelectiontodissentorwithinonemonththereafter,adissentingBrooklynUnionshareholdermustsubmitcertificatesrepresentingsuchholder'ssharesofBrooklynUnioncommonstocktoBrooklynUnionoritstransferagentfornotationthereonoftheelectiontodissent,afterwhichsuchcertificateswillbereturnedtosuchshareholder.Anysuchshareholderwhofailstosubmitsuchcertificatesfornotationwill,attheelectionofBrooklynUnionqrKeySpan(exercisedbywrittennoticetosuchholderwithin45daysfromthedateoffilingofthenoticeofelectiontodissent),losesuchholder'sappraisalrightsunlessacourt,forgoodcauseshown,otherwisedirects.
B.MANAGEMENTDirectorsandOfficersofKeySpan.KeySpan'srestatedcertificateofincorporationandby-laws,asoftheeffectivetime'oftheKeySpanshareexchange,willdivideKeySpan'sBoardofDirectorsintothreeclassesofthreedirectorseach;withdirectorsineachclassgenerallybeingelectedforathree-yearterm.KeySpan'sby-lawswillpermittheBoardofDirectorstofixfromtimetotimethenumberofdirectorsinarangeof9to12,andtheBoardhas'ixeditsinitialsizeat9,effective'asoftheeffectivetimeoftheKeySpanshareexchange.PriortotheeffectivetimeoftheKeySpanshareexchange,BrooklynUnion,asthesoleshareholderofKeySpan,willelectasKeySpandirectorsRobertB.CatellandAlanH.Fishmanforone-yeartermsexpiringatKeySpan'sannualmeetingin1998,KennethI.ChenaultandEdwardD.Millerfortwo-yeartermsexpiringin1999,andJamesQ.Riordanforathree-yeartermexpiringin2000.BrooklynUnion,assuchsoleshareholder,willalsoelectsuchothers,ifany,whomaybeselectedtofilloneormoreoftheBoard'sfourvacanciespriortocompletion'ftheKeySpan.shareexchange,AllofMessrs.Catell,Chenault,Fishman,MillerandRiordanarecurrentlyBrooklynUniondirectors.Asoftheeffectivetime'oftheKeySpanshareex'change,'Messrs.ChenaultandFishmanwillresignfromBrooklynUnion'sBoardofDirectors;Messrs.Catell,MillerandRiordanwillserveontheBoardsofDirectorsofbothKeySpanandBrooklynUnion.RobertB.CatellisandwillbetheonlydirectorofKeySpanuntilKeySpan'srestatedcertificateofincorporationisfiledshortlybeforetheeffectivetimeoftheKeySpanshareexchangeandBrooklynUnion,asKeySpan'ssoleshareholder,electsthedirectorsnamedaboveandsuchothers,ifany,selectedpriortothecompletionoftheKeySpanshareexchangetofillKeySpanBoardvacancies.AftercompletionoftheKeySpanshareexchange,KeySpanBoardvacanciesmaybefilledbyactionofKeySpan'sBoardofDirectors,AsoftheeffectivetimeoftheKeySpanshareexchange,theBoardofDirectorsofKeySpanwillappointthefollowingindividualsastheofficers'fKeySpan:RobertB.CatellChairman,PresidentandChiefExecutiveOfficerCraigG.MatthewsExecutiveVicePresident-UtilityDivisionVincentD.Enright,SeniorVicePresident,ChiefFinancialOfficerandChiefAccountingOfficerMauriceK.ShawSeniorVicePresident-CorporateAffairsDavidL.Phillips,~SeniorVicePresident-StrategicPlanningandCorporateDevelopmentSeniorVicePresident-EnergyMarketingGroupVicePresidentandGeneralAuditorVicePresident-BusinessA'lliancesaridInvestmentsVicePresident,SecretaryandTreasurerVicePresident-InvestorRelationsWilliamK.FeraudoRogerJ.WalzTheodoreSparRobertR.WieczorekJanC.ChildresstWithin15daysaftertheexpirationoftheperiodwithinwhichshareholdersofBrooklynUnionmayfiletheirnoticesofelectiontodissent,orwithin15daysaftertheeffectivetimeoftheKeySpanshareexchange,whicheverislater(butinno'caselaterthan90daysaftertheshareholders'oteadoptingtheKeySpanExchangeAgreement),BrooklynUnionorKeySpan,as"thecasemaybe,mustmakeawrittenoffer(which,iftheKeySpanshareexchangehasnotbeenconsummated,maybeconditioneduponsuchconsummation)toeachshareholderwhohasfiledanoticeofelectiontodissenttopayforsuchholder'ssharesofBrooklynUnioncommonstockataspecifiedpricewhichBrooklynUnionorKeySpan,asthecasemaybe,considerstobetheirfairvalue.IfBrooklynUnionorKeySpan,asthecasemaybe,andthedissentingshareholderareuiiabletoagreeas"to'suchvalue,Section623(h)oftheNYBCLprovidesforjudicialdeterminationoffairvalue.Intheeventofsuchadisagreement,acourtproceedingshallbecommencedbyBrooklynUnionorKeySpan,'sthecasemaybe,intheSupremeCourtoftheStateofNewYork,CountyofKings,orbythedissentingshareholderifBrooklynUnionorKeySpan,asthecasemaybe,failstocommencetheproceedingwithinthetimerequiredbySection623oftheNYBCL.BrooklynUnionandKeySpanintendtocommencesuchaproceedingintheeventofsuchadisagreement.H1
.Mr.CatellisandwillcontinueasChairmanandChiefExecutiveOfficerofBrooklynUnion;Mr.MatthewsisandwillcontinueasPresidentandChiefOperatingOfficerofBrooklynUnion;Mr.EnrightisandwillcontinueasSeniorVicePresidentandChiefFinancialOfficerofBrooklynUnion;Mr.Walzisand,willcontinueasVicePresidentandGeneralAuditorofBrooklynUnion;andMr.WieczorekisandwillcontinueasVicePresident,SecretaryandTreasurerofBrooklynUnion.AsoftheeffectivetimeoftheKeySpanshareexchange,Messrs.Phillips,Shaw,Feraudo,SparandChildresswillnolongerbeofficersofBrooklynUnion.liForfurtherinformationconcerningpersonstobecomedirectorsorofficersofKeySpan,seetheinformationcontainedinBrooklynUnion'sProxyStatementdatedDecember30,1996foritsannualmeetingheldonFebruary6,1997,whichthroughBrooklynUnion'sAnnualReportonForm10-K/AforthefiscalyearendedSeptember30,1996,isincorporatedhereinbyreference.ForcertaininformationconcerninginanagementoftheHoldingCompanyfollowingtheLILCOCombination,see"TheCompanyFollowingtheCombinationandtheLIPATransaction"intheJointProxyStatement/Prospectus.RestrictionsonBoardandManagementInterlocksbetweenKeySpanandBrooklynUnionInordertoaddress.concernsregardingthepossiblediversionoftheattentionofBrooklynUnion'smanagementawayfromtheutilitybusiness,aswellastoavoidpotentialconflictsofinterestwiththeBoardandmanagementofKeySpan,thePSCOrdersetsforththefollowingrestrictionsregardingthecompositionofthemanagementsofBrooklynUnionandKeySpan.Inconnection.withtheproposedLILCOCombination,BrooklynUnionandLILCOhavefiledapetitionwiththePSCrequesting,amongotherthings,theremovalorrelaxationofcertainoftherestrictionsdescribedherein.ThePSChasnotacteduponsuchpetitionasofthedateofthisJointProxyStatement/Prospectus,andtherecanbenoassurancethatanyorallofthereliefrequestedinthepetitionwillbegranted.CompositionoftheBo'ardsofDirectorsBrooklynUnion'sBoardofDirectorsmustincludeatleastamajorityofoutsidedirectors(i.e.,individuals~notemployedbyBrooklynUnion,KeySpanoranyoftheiraffiliates).NomorethantwodirectorsofBrooklyn~Unionmaybeinsidedirectors(i.e.,individualsemployedbyBrooklynUnion,KeySpanoranyoftheiraffiliates),withatleastonesuchinsidedirectorbeinganoperatingofficerofBrooklynUnion.NomorethanfourdirectorsofBrooklynUnionmayeitherbeinsidedirectorsordirectorsofKeySpan.Finally,thenominationofdirectorstoBrooklynUnion'sBoardmustbemadebyacommitteecomposedentirelyofoutsidedirectors.Common0JJicersWithintheHoldingCompanySystemff4'omorethanfiveofficersofBrooklynUnionmayalsoserveasofficersofKeySpan.ThemaximumnumberofBrooklynUnion'sofficerswhomayalsoserveasofficersofKeySpanwillbereducedtofour,ortothree,ifandwhenKeySpan'sinvestmentinBrooklynUnion,expressedastheratioofBrooklynUnion'sTotalCapitaltoKeySpan'sTotalCapital,fallsto60%or50%,respectively.TheSecretaryandTreasurerofBrooklyn,UnionmayserveintheequivalentpositionofKeySpanoranothersubsidiaryofKeySpan,butnootherofficerofBrooklynUnionmayserveasanofficerofanotheroperatingsubsidiaryofKeySpan.C.OTHERINFORMATIONIndependentPublicAccountantsArthurAndersenLLP,independentpublicaccountants,hasbeenappointedbytheBoardofDirectorsofKeySpantoserveasindependentpublicaccountantsofKeySpanforthe1997fiscalyear.ArthurAndersenLLPhasbeentheindependentpublicacco'untantsofBrooklynUnionsince1932.ArthurAndersenLLPhasalsobeenappointedbytheBoardofDirectorsofBrooklynUniontoserveasindependentpublicaccountantsofBrooklynUnion.ShareholdersofBrooklynUnionvotedtoratifysuchappointmentatBrooldynUnion'sannualmeetingofshareholdersheldonFebruary6,1997.
ValidityofKeySpanCommonStockThevalidityofthesharesofKeySpancommonstocktobeissuedintheKeySpanshareexchangewillbe'asseduponbyCullenandDykman,generalcounseltoBrooklynUnionandKeySpan,177MontagueStreet,Brooklyn,NewYork11201,andbySullivan8'cCromwell,specialcounseltoBrooklynUnionandKeySpan,125BroadStreet,NewYork,NewYork10004.DeadlineforShareholderProposalsInordertobeincludedinKeySpan'sproxystatementandformofproxyrelatingtoits1998AnnualMeeting(ifcommonshareholdersadopttheKeySpanExchangeAgreementandtheKeySpanshareexchangeoccurs)orinBrooklynUnion's1998AnnualMeetingproxystatementandformofproxy(iftheKeySpanExchangeAgreementisnotadoptedbycommonshareholders),proposalsfromshareholderstobepresentedatthe1998AnnualMeetingmustbereceivedbytheSecretaryofKeySpanorBrooklynUnion,asthecasemaybe,atOneMetroTechCenter,Brooklyn,NewYork11201-3851,nolaterthanSeptember1,1997.MattersintendedtobepresentedbyholdersofKeySpanorBrooklynUnionCommonStock,asthecasemaybe,atthe1998AnnualMeetingmustbestatedinwriting,anddeliveredtotheappropriateSecretarybysuchshareholdersduringtheperiodbetween90and60dayspriortothedateofthemeeting,whichisexpectedtobeheldonFebruary5,1998.IfBrooklynUnioncommonshareholdersadopttheKeySpanExchangeAgreementandtheKeySpanshareexchangeoccurs,BrooklynUnionwillnolongerbepubliclyheldandKeySpanwillbethesoleownerofBrooklynUnioncommonstockaftertheKeySpanshareexchange.Insuchevent,therewillbenoregularly,scheduledmeetingsofshareholdersofBrooklynUnion'in1998orthereafter.IftheLILCOCombinationisconsummated,therewillbenoregularlyscheduledmeetingsofshareholdersofKeySpanthereafter.eIncorporatedDocumentsForadescriptionofmaterialinformationconcerninganddocumentsincorporatedbyreferencebyBrooklynUnionandLILCO,includingfinancialstatementsandproformaandotherfinancialinformation~seetheJointProxyStatement/Prospectus-"WhereYouCanFindMoreInformation."Copiesofanysuchmaterialsmaybeobtainedinaccordancewiththeproceduressetforththerein.BrooklynUnion'sBoardofDirectorshasunanimouslyapprovedtheholdingcompanystructureandadoptedtheKeySpanExchangeAgreement,believestheholdingcompanystructureandtheKeySpanshareexchangetobeinthebestinterestsofBrooklynUnionanditsshareholders,andrecommendsthattheholdersofBrooklynUnioncommonstockvote"FOR"theholdingcompanyproposalandadoptionoftheKeySpanExchangeAgreementattheBrooklynUnionMeeting.
rt'tlPPPIr[THISPAGEINTENTIONALLYLEFTBLANK]VI ANNEXKAMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGEThisAMENDEDANDRESTATEDAGREEMENTANDPLANOFEXCHANGE(the"Agreement"),datedasofJune26,1997,isbetweenTHEBROOKLYNUNIONGASCOMPANY,aNewYorkcorporationandthecorporationvlhosesharesofCommonStock,parvalue$.33Npershare,willbeacquiredpursuanttothe"Exchange"providedforinthisAgreement(the"SubjectCorporation"),andKEYSPANENERGYCORPORATION,aNewYorkcorporationandthecorporationwhichwillacquiretheforegoingsharesofCommonStockoftheSubjectCorporation(the"AcquiringCorporation").TheSubjectCorporationandtheAcquiringCorporationarehereinafterreferredto,collectively,asthe"Corporations".WITNESSETH:WHEREAS,theauthorizedcapitaloftheSubjectCorporationis$163,333,100,consistingof(a)70,000,000sharesofCommonStock,parvalue$.335pershare("SubjectCorporationCommonStock"),ofwhich50,362,161sharesareissuedandoutstanding(whichnumberofissuedandoutstandingsharesissubjecttochangepriortotheEffectiveTime(ashereinafterdefined)oftheExchangepursuanttothedividendreinvestmentandstockpurchaseplan("DividendReinvestmentPlan")andtheEmployeeSavingsPlan,DiscountStockPurchasePlanforEmployeesandLong-TermPerformanceIncentiveCompensationPlan(eachan"EmployeePlan"andcollectivelythe"EmployeePlans")oftheSubjectCorporation,(b)900,000sharesofCumulativePreferredStock,parvalue$100pershare("SubjectCorporation$100PreferredStock"),ofwhich66,000sharesareissuedandoutstandinginoneseriesdesignated"4.60%CumulativePreferredStock,SeriesB,$100parvalue",and(c)2,000,000shaiesofCumulativePreferredStock,parvalue$25pershare("SubjectCorporation$25PreferredStock"),ofwhichnosharesareissuedandoutstanding;WHEREAS,theAcquiringCorporationisawholly-ownedsubsidiaryoftheSubjectCorporationwithauthorizedcapitalstockconsistingof70,000,000sharesofCommonStock,parvalue$.33Npershare("AcquiringCorporationCommonStock"),ofwhich10sharesareissuedandoutstandingandownedbytheSubjectCorporation;WHEREAS,theBoardsofDirectorsoftheCorporationsdeemitdesirableandinthebestinterestsoftheCorporationsandtheshareholdersoftheSubjectCorporationthat,attheEffectiveTime,(a)theAcquiringCorporationacquireandbecometheownerandholderofeachshareofSubjectCorporationCommonStockissuedandoutstandingattheEffectiveTime,(b)eachshareofSubjectCorporationCommonStockissuedandoutstandingimmediatelypriortotheEffectiveTimebeautomaticallyexchangedfor'oneshareofAcquiringCorporationCommonStock,and(c)eachholderofsharesofSubjectCorporationCommonStockissuedandoutstandingimmediatelypriortotheEffectiveTimebecomestheholderofalikenumberofsharesofAcquiringCorporationCommonStock,allonthetermsandconditionshereinaftersetforth;WHEREAS,theSubjectCorporation,LongIslandLightingCompany,aNewYorkcorporation("LILCO"),andBLHoldingCorp.,aNewYorkcorporation("BL"),haveenteredintoanAmendedandRestatedAgreementandPlanofExchangeandMerger,datedasofJu'ne26,1997(the"BLAgreement"),pursuanttowhichaftertheEffectiveTimeandsubjecttoandinaccordancewiththetermsandconditionsoftheBLAgreementeachholderofsharesofAcquiringCorporationCommonStockissuedandoutstandingimmediatelypriortotheeffectivetimeofthemergerprovidedforintheBLAgreemcntwillbecometheholderofalikenumberofsharesofBLcommonstock,parvalue$0.01pershare("BLCommonStock"),andeachholderofsharesofLILCOcommonstock,parvalue$5.00pershare("LILCOCommonStock"),issuedandoutstandingimmediatelypriortotheeffectivetimeoftheLILCOmandatoryshareexchangewillbecomeaholderofaspecifiednumberofsharesofBLCommonStock,withtheresultthatallissuedandoutstandingAcquiringCorporationCommonStockandallissuedandoutstandingLILCOCommonStockwillbecomeownedbyBLandtheAcquiringCorporationandLILCOwillbecomesubsidiariesofBL;K-1
'HEREAS,asaresultoftheBLAgreementandthetransactionsprovidedfortherein,theBoardsofDirectorsoftheCorporationsdeemitdesirableandinthebestinterestsoftheCorporationsandtheshareholdersoftheSubjectCorporationthattheAgreementandPlanofExchange,datedasofDecember18,1996,betweentheSubjectCorporationandtheAcquiringCorporationrelatingtotheExchangebeamendedandrestatedtotakeintoaccountthetermsandconditionsoftheBLAgreementandthetransactionsprovidedfortherein;andWHEREAS,theBoardsofDirectorsoftheCorporationshaveeachapprovedandadopted,orwillratifyandadopt,thisAgreement,andthe-BoardofDirectorsoftheSubjectCorporationisrecommendingthattheshareholdersoftheSubjectCorporationapproveandadopttheExchangeandthisAgreementpursuanttoSection913oftheNewYorkBusinessCorporationLaw(the"BCL").NOW,THEREFORE,theCorporationsherebyagreeasfollows:ARTICLEIfTheExchangeandthisAgreementshallbesubmittedtotheholdersofSubjectCorporationCommonStockforapprovalandadoptionasprovidedbySection913oftheBCL.Theaffirmativevoteoftheholdersofatleasttwo-thirdsoftheissuedandoutstandingSubjectCorporationCommonStockshallbenecessarytoapproveandadopttheExchangeandthisAgreement.'RTICLEIISubjecttothetermsandconditionsofthisAgreement,theExchangeshallbecomeeffectiveimmediatelyfollowingthecloseofbusinessonthedateoffilingwiththeNewYorkDepartmentofState(the"DepartmentofState")ofacertificateofexchangepursuanttoSection913(d)oftheBCL("Certificate"),oratsuchlatertimeanddateasmaybestatedintheCertificate(thetimeanddateatandonwhichtheExchangebecomeseffectivebeingreferredtohereinasthe"EffectiveTime").ARTICLEIIIA.AttheEffectiveTime:(1)eachshareofSubjectCorporationCommonStockissuedandoutstandingimmediatelypriortotheEffectiveTimeshallbeautomatically,exchangedforoneshareofAcquiringCorporationCommonStock,whichshares,shallbefullypaidandnonassessablebytheAcquiringCorporation;(2)theAcquiringCorporationshallacquireandbecometheownerandholderofeachissuedandoutstandingshareofSubjectCorporationCommonStocksoexchanged;(3)eachshareofAcquiringCorporationCommonStockissuedandoutstandingimmediatelypriortotheEffectiveTimeshallbecancelledandshallthereuponconstituteanauthorizedandunissuedshareofAcquiringCorporationCommonStock;(4)'achshareofSubjectCorporationCommonStockheldundertheDividendReinvestmentPlanoranEmployeePlan(includingfractionalanduncertificatedshares)immediatelypriortotheEffectiveTimeshallbeautomaticallyexchangedforalikenumberofshares(includingfractionalanduncertificatedshares)ofAcquiringCorporationCommonStock,whichsharesshallbeheldunderandpursuanttotheDividendReinvestmentPlanorbeissuedundersuchEmployeePlan,asthecasemaybe,ashereinafterprovided;(5).eachunexpiredandunexercisedoptiontopurchaseSubjectCorporationCommonStock("SubjectCorporationStockOption")undertheLong-TermPerformanceIncentiveCompensationPlan(the~"IncentivePlan"),whethervestedorunvested,willbeautomaticallyconvertedintoanoption~K-2 (a"SubstituteOption")topurchaseanumberofsharesofAcquiringCorporationCommonStockequaltothenumberofsharesofSubjectCorporationCommonStockthatcouldhavebeenpurchasedimmediatelypriortotheEffectiveTime(assumingfullvesting)undersuchSubjectCorporationStockOption,atapricepershareofAcquiringCorporationCommonStockequaltothepershareoptionexercisepricespecifiedinsuckSubjectCorporationStockOption.InaccordancewithSection424(a)oftheInternalRevenueCodeof1986,asamended,eachSubstituteOptionshallprovidetheoptionholderwithrightsandbenefitsthatarenolessandnomorefavorabletohimthanwereprovidedundertheSubjectCorporationStockOption;and(6)theformerholdersofSubjectCorporationCommonStockshallbeentitledonlytoreceivesharesofAcquiringCorporationCommonStockinexchangethereforasprovidedinthisAgreement;provided,however,thateachsuchshareholdercomplyingwithSections623and910oftheBCLshallhavetherighttoreceivepaymentofthefairvalueofsuchshareholder'sSubjectCorporationCommonStockandshallhavetheotherrightsandbenefitsprovidedinsuchSections.B.SharesofSubjectCorporation$100PreferredStockandSubjectCorporation$25PreferredStockshallnotbeexchangedorotherwiseaffectedbytheExchangeand,totheextentprovidedintheSubjectCorporation'sRestatedCertificateofIncorporationandtheBCL,shallcontinuetobeauthorizedsharesofSubjectCorporation$100PreferredStockorSubjectCorporation$25PreferredStock,asthecasemaybe.AllsharesofSubjectCorporation$100PreferredStockandallshares,ifany,ofSubjectCorporation$25PreferredStockissuedandoutstandingfollowingapprovalandadoptionoftheExchangeandthisAgreementasprovidedforinArticleIofthisAgreementshallpromptlybecalledforredemptionbytheSubjectCorporationandshallberedeemedpriortotheEffectiveTime.C.PriortotheEffectiveTime,theAcquiringCorporation'sCertificateofIncorporationshallbeamendedandrestatedassetforthasAttachment1tothisAgreem'ent,andtheAcquiringCorporation'sBy-LawsshallbeassetforthasAttachment2tothisAgreement.'D.AsoftheEffectiveTime,theAcquiringCorporationshallsucceedtotheDividendReinvestmentPlanasineffectimmediatelypriortotheEffectiveTime,andtheDividendReinvestmentPlanshallbeappropriatelymodifiedtoprovidefortheissuanceordeliveryofAcquiringCorporationCommonStockonandaftertheEffectiveTimepursuantthereto.E.AsoftheEffectiveTime,(1)theEmployeePlansshallbeappropriatelyamendedtoprovidefortheissuance"ordeliveryofAcquiringCorporationCommonStock,andtheAcquiringCorporationshallagreetoissueordeliver'AcquiringCorporationCommonStock,and(2)theIncentivePlanshallalsobeappropriatelyamendedtoprovidefortheissuanceofoptionsbytheAcquiringCorporationtopurchaseAcquiringCorporationCommonStock,ineachcaseonandaftertheEffectiveTimepursuantthereto.ARTICLEIVA.ThefilingoftheCertificatewiththeDepartmentofStateandtheconsummationoftheExchangeshallbesubjecttosatisfactionofthefollowingconditionsatorpriortotheEffectiveTime:(1)theaffirmativevoteoftheholdersofSubjectCorporationCommonStockprovidedforinArticle,IofthisAgreementshallhavebeenreceived;(2)suchorders,authorizations,approvalsorwaiversfromtheNew'orkPublicServiceCommissionandallotherjurisdictiveregulatorybodies,boardsoragenciesrequiredtoconsummatetheExchangeandrelatedtransactionsshallhavebeenreceived,shallremaininfullforceandeffect,andshallnotinclude,inthesole'judgmentoftheBoardofDirectorsoftheSubjectCorporation,unacceptableconditionS;(3)allsharesofSubjectCorporation$100PreferredStockandallshares,ifany,ofSubjecttCorporation$25PreferredStockissuedandoutstandingshallhavebeencalledforredemptionbytheSubjectCorporation,allsuchsharesshallhavebeenredeemedandtheredemptionpriceorprices,includingK-3 accruedandunpaiddividends,shallhavebeenpaidinfull,andattheEffectiveTimenosharesofSubjectCorporation$100PreferredStockandSubjectCorporation$25PreferredStockshallbeissuedandoutstanding;(4)theAcquiringCorporationCommonStocktobeissuedinconnectionwiththeExchangeshallhavebeenlisted,subjecttoofficialnoticeofissuance,bytheNewYorkStockExchange;and(5)theRestatedCertificateofIncorporationoftheAcquiringCorporationshallhavebeenfiledwiththeDepartmentofState.B.SimultaneouslywiththeEffectiveTime,theAcquiringCorporationshall.fileanexemptionstatementonFormU-3A-2withtheSecuritiesandExchangeCommissionforthepurposeofexemptingitandeachofitssubsidiariesassuchfromallprovisionsofthePublicUtilityHoldingCompanyActof1935(exceptSection9(a)(2)thereof).ARTICLEVA.FollowingtheEffectiveTime,eachholderofanoutstandingcertificateorcertificatestheretoforerepresentingsharesofSubjectCorporationCommonStockmay,butshallnotberequiredto,surrenderthesametotheAcquiringCorporation'sTransferAgentforcancellationandreissuanceofariewcertificateorcertificatesinsuchholder'snameorforcancellationandtransfer,andeachsuchholderortransfereeshallbeentitledtoreceiveacertificateorcertificatesrepresentingthesamenumberofsharesofAcquiringCorporationCommonStockasthesharesofSubjectCorporationCommonStockpreviouslyrepresentedbythecertificateorcertificatessurrendered.Untilsosurrenderedorpresentedforexchangeortransfer,eachoutstandingcertificatewhich,immediatelypriortotheEffectiveTime,representsSubjectCorporationCommonStockshallbedeemedandshallbetreatedforallpurposestorepresenttheownershipofthesamenumberofsharesofAcquiringCorporationCommonStockasthoughsuchsurrenderorexchangeortransferhadtakenplace.TheholdersofSubjectCorporationCommonStockattheEffectiveTimeshallhavenorightatandaftertheEffectiveTimetohavetheirsharesofSubjectCorporationCommonStocktransferredonthestocktransferbooksoftheSubjectCorporation(suchstocktransferbooksbeingdeemedclosedforthispurposeattheEffectiveTime),andatandaftertheEffectiveTimesuchstocktransferbooksmaybedeemedtobethestocktransferbooksoftheAcquiringCorporation.B.FollowingtheEffectiveTime,theSubjectCorporationshallassigntotheAcquiringCorporation,andtheAcquiringCorporationshallbesubstitutedforandshallassume,alloftheSubjectCorporation'srightsandobligationsundertheBLAgreement(andassuchAgreementmayhereafterbeamended),whichassignment,substitutionandassumptionshallbecomeeffectiveasoftheEffectiveTime,andtheAcquiringCorporationherebyagreestoexecuteanyamendmenttotheBLAgreementnecessarytoprovidethebenefitsthereofto,theAcquiringCorporation.TheSubjectCorporation,asthesoleshareholderoftheAcquiringCorporation,herebyapprovesandadoptstheBLAgreementandthetransactionsprovidedfortherein,asprovidedbytheBCL.ARTICLEVIA.ThisAgreementmaybeamended,modifiedorsupplemented,orcompliancewithanyprovisionhereofmaybewaived,atanytimepriortotheEffectiveTime(including,withoutlimitation,afterreceiptoftheaffirmativevoteofholdersofSubjectCorporationCommonStockasprovidedinArticleIV(1)hereof),bythemutualconsentoftheBoardsofDirectorsoftheSubjectCorporationandtheAcquiringCorporationatanytimepriortotheEffectiveTime;,provided,however,thatnosuchamendment,modification,supplementorwaivershallbemadeoreffectedifsuchamendment,modification,supplementorwaiver,would,inthesole.judgmentoftheBoardofDirectorsoftheSubjectCorporation,materiallyandadverselyaffecttheshareholdersoftheSubjectCorporation.B.ThisAgreementmaybeterminatedandtheExchangeandrelatedtransactionsabandoned,atanytimepriortotheEffectiveTime(including,withoutlimitation,afterreceiptoftheaffirmativevoteofholdersofK-4 SubjectCorporationCommonStockasprovidedinArticleIV(1)hereof),iftheBoardofDirectorsoftheSubjectCorporationdetermines,initssolejudgmeht,thatconsummationoftheExchangewouldforanyreasonbeinadvisableornotinthebestinterestsoftheSubjectCorporationoritsshareholders.INWITNESSWHEREOF,eachoftheCorporations,pursuanttoauthorizationandapprovalgivenbyitsBoardofDirectors,hascausedthisAgreementtobeexecutedasofthedatefirstabovewritten.THEBROOKLYNUNIONGASCOMPANYBy:/s/CRAIGG.MATTHEwsCraigG.MatthewsPresidentandChiefOperatingOfficerKEYSPANENERGYCORPORATIONBy:/S/ROBERTB.CATELLRobertB.CatellChairman,PresidentandChiefExecutiveOfficerK-5
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ANNEXL(Attachment1totheKeySpanExchangeAgreement)RESTATEDCERTIFICATEOFINCORPORATIONOFKEYSPANENERGYCORPORATION'nderSection807oftheBusinessCorporationLaw)'heundersigned,beingtheChairmanandtheSecretaryofKeySpanEnergyCorporation,aNewYorkcorporation,herebycertifythat:FIRST.ThenameoftheCorporationisKeySpanEnergyCorporation.SECOND.TheCertificateofIncorporationoftheCorporationwasfiledbytheDepartmentofStateonJune25,1996.THIRD.TheCertificateofIncorporationoftheCorporationisamendedorchangedtoeffectoneormoreamendmentsorchangesauthorizedbytheBusinessCorporationLawoftheStateofNewYork,namely:toincreasethenumberofsharesofCommonStock-,whichtheCorporationhasauthoritytoissuefromseventymillion(70,000,000)totwohundredandtenmillion(210,000,000);toauthorizeaclassoftenmillion(10,000,000)sharesofPreferredStock,withaparvalueof$1.00pershare;toprovidethatnoholderofCommonStockorPreferred'Stockshallbeentitledasamatterofrightto'anypreemptiverightsasnoworhereafterprovidedbythelawsoftheStateofNewYork;toprovidethat,exceptasmayberequiredbylaworasmaybeprovidedbytheBoardofDirectorsinrespectofanyparticularseriesofPreferredStock,allvotingrightsofthetCorporationshallbevestedexclusivelyintheholdersofCommonStockwhoshallhaveonevotepershareonallmatters;toprovidefortheadoption,amendmentorrepealofBy-LawsbytheBoardofDirectors;toprovideforthecallingofspecialmeetingsofshareholders;toprovideforthesizeoftheBoardofDirectorstobefixedbyorpursuanttotheBy-Laws,theBoardofDirectorstobeclassifiedintothreeclasses,fillingvacanciesontheBoardofDirectors,andremovalofdirectors;toprovidefortwo-thirdsvotinginrespectofamendingcertainprovisionsoftheCertificateofIncorporation;andtoprovidefortwo-thirdsvotinginrespectofamending,repealingoradoptingcertainBy-LawsbyactionoftheBoardofDirectorsortheshareholders.NThetextoftheCertificateofIncorporationisherebyrestatedassoamendedorchangedtoreadasfollows:1.ThenameofthecorporationshallbeKeySpanEnergyCorporation(the"Corporation").2.Thepurpos'eforwhichtheCorporationisformedistoengageinanylawfulactoractivityforwhichcorporationsmaybeformedunder'heBusinessCorporationLawoftheStateofNewYork;providedthattheCorporationisnotformedtoengageinanyactoractivitywhichrequirestheconsentorapprovalofanystateofficial,department,board,agencyorotherbody,withoutsuchconsentorapprovalfirstbeingobtained.3.TheofficeoftheCorporationintheStateofNewYorkistobelocatedintheCityofNewYork,CountyofKings.4.TheaggregatenumberofshareswhichtheCorporationshallhaveauthoritytoissueis(a)twohundredandtenmillion(210,000,000)sharesofCommonStock,withaparvalueof$.33Mpershare(the"CommonStock"),andtenmillion(10,000,000)sharesofPreferredStock,withaparvalueof$1.00pershare(the"PreferredStock").Therelativerights,preferencesandlimitationsofthesharesofsuchclassesofstockareasfollows:nNH'A.ThePreferredStockmaybeissuedfromtimetotimebytheBoardofDirectorsassharesofoneormoreseriesofPreferredStock,andtheBoardofDirectorsisexpresslyauthorized,priortoissuance,inthe resolution.orresolutionsprovidingfortheissueofsharesofeachparticularseries,toestablishanddesignateeachparticularseriesandtofixtherights,preferencesandlimitationsofeachparticularseries,andtherelativerights,preferencesandlimitationsbetweenseries,asfollows:I(i)Thedistinctiveserialdesignationofsuchserieswhichshalldistinguishitfromotherseries;(ii)Thenumberofsharesincludedinsuchseries,whichnumbermaybeincreasedordecreasedfromtimetotimeunlessotherwiseprovidedbytheBoardofDirectorsincreatingsuchseries;,4(iii)Theannualorotherdividendrateorrates(ormethodofdeterminingsuchrateorrates)forsharesofsuchseriesandthedateordatesuponwhichsuchdividendsshallbepayable;l'r(iv)Whetherdividendsonthesharesofsuchseriesshallbecumulative,and,inthecaseofsharesofanyserieshavingcumulativedividendrights,thedateordates(ormethodfordeterminingsuchdateordates)fromwhichdividendsonthesharesofsuchseriesshallbecumulative;"(v}Theamountoramountswhichshallbe.paidoutoftheassetsoftheCorporationtotheholdersof'hesharesofsuchseriesuponvoluntaryorinvoluntaryliquidation,dissolution,orwindingupoftheCorporation;(vi)Thepri'ceorprices(cashorotherwise)atwhich,theperiodorperiodswithinwhichandthe.termsandconditionsuponwhich,-ifany,thesharesofsuchseriesmaybe'purchased,redeemedoracquired(by'xchangeorotherwise),inwholeorinpart,attheoptionoftheCorporation;~(vii)Provisionorprovisions,ifany,,fortheCorporationtopurchase,redeemoracquire(byexchangeor,otherwise),inwholeorinpart,sharesofsuchseriespursuanttoasinkingorothersimilarfund,andthepriceorprices(cashorotherwise)atwhich,theperiodorperiodswithinwhich,andtheter'msandcondi-'ionsuponwhichthesharesofsuchseriesshallbesopurchased,redeemedorac'quired,inwhole'orinpart,pursuanttosuchprovisionorprovisions;,i(viii)The'periodor'eriodswithinwhichandthetermsandconditions,includingthepriceorpricesortherateor'ratesofconveisionorexchangeandthetermsandconditionsofanyadjustmentsthereof,"uponwhich,ifany,thesharesofsuchseriesshallbeconvertibleorexchangeable,inwholeorinpart,attheoptionoftheholderorthe'Corporationorbothintosharesofanyclassofstockorintosharesofan/other'series,ofPreferredStock,except'ntoshareshavingrightsorpreferencesastodividendsorthedistributionofassetsuponliquidation,dissolutionorwinding'poftheCorporationwhicharepriororsuperiorinranktothoseofthesharesbeingconvertedorexchanged;'I(ix)Thevotingrights,ifany,ofthesharesofsuchseriesinadditiontothoserequiredbylaw,includingthe:number'fvotespershare(whichmaybefractionalormoreorless'thanone)andanyrequirementfortheapprovalbytheholdersofuptotwo-thirdsofthesharesofPreferredStock,orofthe=sharesofoneormoreseries,orofboth,asaconditiontospeci6edcorporateactionoiamendmentstotheCertificateofIncorporation;and(x)Anyotherrelativerights,preferencesorlimitationsofthesharesofsuchseriesnotinconsistentwithapplicablelaw.B.AllissuedandoutstandingseriesofPreferredStock(i)shallrankpriororsuperiortotheCommonStockinrespectoftherighttoreceivedividendsandtherighttoreceivepaymentsoutoftheassetsoftheCorporationuponvoluntaryorinvoluntaryliquidation,dissolutionorwindingupoftheCorporation,(ii)shallbeofequalrank,regardlessofseries,and(iii)shallbeidenticalinallrespectsexceptasprovidedinparagraphAofthisArticle4.ThesharesofanyparticularseriesofthePreferredStockshallbeidenticalwitheachotherinallrespectsexceptastothedatefromandafterwhichdividendsthereuponshallbecumulativeoraccrueifdeclared.Incasedividendsoramountspayableonliquidation,dissolutionozwindingupofthe,CorporationarenotpaidinfullonthePreferredStock,thesharesofallseriesofthePreferredStockshallshareratablyinthepaymentofdividends,includingaccumulations,ifany,inaccordancewiththesumswhichwouldbepayable'onsuch.shares~ifalldividendsweredeclaredandpaidinfull,andinanydistributionofassetsotherthanbywayofdividendsin~
accordancewiththesumswhichwouldbe.payableonsuchdistributionsifallsumspayable,weredischargedinfull.All'PreferredStockredeemed,purchased<<orotherwiseacquiredbytheCorporation(includingsharessurrenderedforconversionorexchangeoracquiredbyconversionorexchangeorotherwise)shallbecancelledandthereuponrestoredtothestatusofhuthorizedandunissuedsharesiofPreferredStockundesignatedastoIIII'IIC;No'holderofsharesoftheCorporationofanyclassorseries,noworhereafterauthorized,shallhaveanypreferentialorpreemptiverighttosubscribefor,purchaseorreceive,orhaveany'preferentialorpreemptiverightwithrespectto;anysharesoftheCorporationofanyclass"orserieswhatsoever,noworhereafterauthorized,oranyoptionsorwarrantsforanysuchsha'res,'ranyrightstosubscribeforor-purchaseanysuchshares,oranysecuritiesconvertibleintoorexchangeableforanysuchshare's'whatsoever,'hethernoworhereafterauthorizedandwhetherissuedforcashorotherconsiderationorbywayofdividendorotherwise,whichmayatanytimebeissued,sold,delivered'orofferedbytheCorporation;*D.'xceptas'mayfromtimetotimeb'erequiredbylawandexceptasotherwisemay'eprovidedbytheBoardofDirecto'rsinaccordancewithparagraphAofthisAiticl'e4inrespectofanyparti'cularseriesofPreferredStock,allvotingrightsoftheCorp'orationshallbevestedexclusivelyintheholdersoftheCommonStockwhoshallbeentitledtoonevotepershareonallmatters.'ltI5.TheSecretaryofStateoftheStateofNewYorkisdesignatedastheagentoftheCorporationuponwhomanyprocessinanyactionorproceedingagainst,itmaybeserved.ThepostofficeaddresstowhichtheSecretaryofStateshallmailacopyofanysuchprocess,served,uponhimisCullenandDykman,177MontagueStreet,Brooklyn,NewYork11201-3611,Attention:LanceMyers,Esq.6,NodirectoroftheCorporationshall.havepersonalliability,totheCorporationoritsshareholdersfordamagesforanybreachofdutyinsuchcapacity,providedthattheforegoingshallnoteliminateorlimittheliabilityofanydirectorifajudgmentorotherfinaladjudicationadversetosuchdirectorestablishesthatsuchdirector'sactsohio'missionswereinbadfaithorinvolvedintentionalmisconductoraknowingviolationof.laworthatsuchdirectorpersonallygainedinlfactafinancialprofitorotheradvantagetowhichsuch'directorwasnotlegallyentitledorthatsuchdirector'sactviolatedSection719oftheBusinessCorporationLaw'ofNewYork.Noamendment.t'oorrepealofthisArticle6shallapplytoor"haveanyeffectontheliabilityorallegedliabilityofanydirectoroftheCorporationfororwithrespecttoanyactsoromissionsofsuchdirectoroccurringpriortosuchamendmentorrepeal.IftheBusinessCorporationLawofNewYorkisamendedhereaftertoexpandorlimittheliabilityofadip:ctor,thentheliabilityofadirectoroftheCorporationshallbeexpandedtotheextentrequiredorlimitedtotheextentpermittedbytheBusinessCorporationLaw'ofNew'York,assoamended.7.Subjecttothevoting'provisionsofArticle11,By'-'Laws'maylbeadopted,amendedorrepealedby'theBoardofDirectorsbythevoteofamajorityofthedirectorspresentatameetingoftheBoardatwhichaquorumispresent.DI,I8.Subjecttothe-rightsofjioldersofanyclassorseriesofstock,noworhereafterauthorized,rankingpriororsuperiortotheCommonStockinrespectof.therighttoreceivedividendsortherighttoreceivepaymentsoutoftheassetsoftheCorporationuponvoluntaryorinvoluntaryliquidation,dissolutionor,windingupoftheCorporationwithrespecttosuchclassorseriesofstock,specialmeetingsofshareholdersmaybecalledonlybytheChairmanorbytheBoardofDirectorspursuanttoaresolutionadoptedbya,majorityofthetotal,numberofdirectorswhichtheCorporationwouldhaveif,therewerenovacancies.P"II9.ThefollowingprovisionsshallrelatetotheBoard.ofDirectorsoftheCorporation:A.ThesizeoftheBoardofDirectorsshallbefixedbyorpursuanttotheBy-Laws.TheBoardofDirectorsshallbedividedintothreeclassesdesignatedClassI,ClassIIandClassIII.SuchclassesshallbeasnearlyequalinnumberasthethentotalnumberofdirectorsconstitutingtheentireBoardpermits.Atthefirstannualmeetingofshareholders,oranyspecialmeetinginlieuthereof,ClassI,ClassIIandClassIIIdirectorsshallbeelected fortermsexpiringatthenextsucceedingannualmeeting,thesecondsucceedingannualmeetingandthethirdsucceedingannualmeeting,respectively,anduntiltheirrespectivesuccessorsareelectedandqualified.Ateachannualmeetingofshareholdersaftersuchfirstannual(orspecial).meetingofshareholders;thedirectorschosentosucceedthoseintheclasswhosetermsthenexpireshallbeelectedbyshareholdersfortermsexpiringatthethirdsucceedingannualmeetingafterelection,orforsuchlessertermforwhichoneormoremaybenominatedinaparticularcaseinordertoassurethatthenumberofdirectorsineachclassshallbeappropriatelyconstituted,anduntiltheirrespectivesuccessorsareelectedandqualified.Newlycreateddirectorshipsoranydecreaseindirectorshipsresultingfromincreasesordecreasesinthenumberofdirectorsshallbesoapportionedamongtheclassesofdirectorsastomakeallthe,classesasnearlyequalinnumberaspossible.VacanciesontheBoardofDirectorsatanytimeforanyreasonexcepttheremovalofdirectorswithout,causemaybefilledbyamajorityofthedirectorstheninoffice,althoughlessthanaquorum.Notwithstandingtheforegoing,whenevertheholdersofanyoneormoreclassesorseriesofstock(otherthantheCommonStock),noworhereafterauthorized,shallhavetheright,votingseparatelyorbyclassorseries,toelectdirectorsatanannualorspecialmeetingofshareholders,theelection,termofoffice,fillingofvacanciesandotherfeaturesofsuchdirectorshipsshallbegovernedbyanyprovisionsoftheCertificateofIncorporationapplicablethereto,andsuchdirectorssoelectedshallnotbedividedintooneor'moreclassespursuanttothisArticle9Aunlessexpresslyprovidedbysuchprovisions.B.Directorsmayberemovedforcausebyavoteofshareholdersentitledtovotethereon,orbyactionoftheBoardofDirectors.Directorsshallnotbe'removedwitltoutcausebyshareholders,exceptinthecaseofadirectorelectedbytheholdersofanyclassorseries(otherthantheCommonStock),noworhereafterauthorized,votingasaclassorseries,whensoentitledbytheprovisionsoftheCertificateofIncorporationapplicablethereto.10.InadditiontoanyvotethatmayberequiredbylaworintheCertificateofIncorporation"inrespectofanyclassorseriesofstock,noworhereafterauthorized,rankingpriororsuperiorinrightofpaymenttotheCommonStockinrespectoftherighttoreceivedividendsortherighttoreceivepaymentsoutoftheassetsoftheCorporationuponanyvoluntaryorinvoluntaryliquidation,dissolutionorwindingupoftheCorporation,theprovisionsofArticles4C,6,7,8,9,10and11oftheCertificateofIncorporation,shallnotbeamendedorrepealed,oranewprovisionadoptedinconsistenttherewith,withouttheaffirmativevoteofnotlessthantwo-thirdsofthesharesentitledtovotethereonatsuchannualorspecialmeetingofshareholdersatwhichanysuchactionisproposed.11.ExceptasotherwiseprovidedintheCertificateofIncorporationinrespectofanyclassorseriesofstock,noworhereafterauthorized,rankingpriororsuperiormrightofpaymenttotheCommonStockinrespectoftherighttoreceivedividendsortherighttoreceivepaymentsoutoftheassetsoftheCorporationuponanyvoluntaryorinvoluntaryliquidation,dissolutionorwindingupoftheCorporation,theBy-LawsoftheCorporationmaybeamendedorrepealed,oriiewBy-Lawsmaybeadopted,either(a)byavoteofshareholdersentitledtovoteatanyannualorspecialmeetingofshareholders,or(b)byavoteofthemajorityoftheentireBoardofDirectorsatanyregularorspecialmeetingofdirectors;provided,however,thatanyamendmentorrepealof,ortheadoptionofanynewBy-Laworprovisioninconsistentwith,ArticleI(Section1.2-"SpecialMeetings",IA-"PresidingatMeetings"or1.12-"NoticeofShareholderBusinessandNominations"),ArticleII(Section2.1-"NumberofDirector's",2.2-"Elections,TermsandVacancies"or2.9-"RemovalofDirectors"),ArticleVl-"Indemnification",orArticleVIII-"AmendmentstoBy-Laws"oftheBy-Laws,ifbyactionofsuchshareholders,shall'beonlyupontheaffirmativevoteofnotlessthantwo-thirdsofthesharesentitledtovotethereonatsuchannualorspecialmeetingofshareholdersatwhichanysuchactionisproposedand,ifbyactionoftheBoardofDirectors,shallbeonlyupontheapprovalofnotlessthantwo-thirdsoftheentireBoardofDirectorsatanyregularorspecialmeetingofdirectors.
FOURTH.,Theforegoing'RestatedCertificateof-IncorporationwasauthorizedbytheBoardofDirectorsoftheCorporationbyunanimouswritten,consentdated.June,1997,followedbytheunanimous"writtenconsentoftheshareholderoftheCorporationdatedJune,1997.t
'INWITNESSWHEREOF,theundersignedhavesubscribedthisRestatedCertificateofIncorporationandIaffirmthestatementscontainedhereinastrueunderthepenaltiesof.perjurythisdayof.,",1997.KEYSPANENERGYCORPORATIONByRobertB.CatellChairtnan,PresidentandChiefExecutiveOfftcerByRobertR.WieczorekVicePresident,SecretaryandTreasurer (Attachment2totheKeySpanExchangeAgreement)KEYSPANENERGYCORPORATIONBY-LAWSL-7 ARTICLEIMEETINGSSection1.1Section1.2Section1.3Section1.4Section1.5Section1.6Section1.7Section1.8Section1.9Section1.10Section1.11Section1.12Section1.13Section1.14>KEYSPAN,ENERGYCORPORATIONINDEXOFSHAREHOLDERSAnnualMeetingsSpecialMeetingsPlaceofMeetingsPresidingatMeetingsQuorumAdjournmentNoticeofMeetings.WaiverandConsent.FixingRecordDate.ListofShareholdersatMeetingsProxiesNoticeofShareholderBusinessandNominations..InspectorsofElectionsVoteofShareholders.Page1111122333ARTICLEIIBOARDOFSection2.1Section2.2Section2.3Section2.4Section2.5Section2.6Section2.7Section2.8Section2.9Section2.10Section2.11Section2.12Section2.13DIRECTORSNumberofDirectors.Elections,TermsandVacancies.MeetingsoftheBoard.NoticeandAdjournmentFiscalYear.Quorum.UnanimousWrittenConsentResignationofDirectorsRemovalofDirectors.CompensationofDirectors.TimeandPlaceofMeetings.~.SpecialMeetings.TelephonicMeetings8g~910101010101010ARTICLEIIICOMMITTEESSection3.1Section3.2Section3.3Section3.4Section3.5Section3.6Section3.7Section3.8Section3.9Section3.10Section3.11Section3.12OrganizationandAuthority.ExecutiveCommittee.OrganizationandNominatingCommitteeAuditCommittee.ActionbyaCommittee..............Quorum.ReportstoBoardofDirectors..................CompensationofCommitteeMembers.ResignationandRemovalofCommitteeMembersUnanimousWrittenConsent.PlaceofCommitteeMeetingsNotice......................111111121212121212"0 ARTICLEIVPageOFFICERSSection4.1Section4.2Section4.3Section4.4Section4.5Section4.6Section4.7Section4.8Section4.9Section4.10Section4.11ANDTHEIRDUTIESOfficersTermofOffice;Resignation;Removal;VacanciesPowersandDuties.SalariesChairman.ViceChairman.PresidentVicePresident'ecretary.Treasurer~Comptroller.1313131414141414151515ARTICLEVSHARESSection5.1Section5.2Section5.3Section5.4Section5.5ection5.6CERTIFICATEDSHARESCertificates,RegistrarandTransferAgent.AuthorizationofFacsimileSignaturesandSeal.TransferofCertificatedSharesLost,StolenorDestroyedShareCertificatesUNCERTIFICATEDSHARESUncertificatedShares.TransferofUncertificatedShares.161616171717ARTICLEVIINDEMNIFICATIONSection6.1GeneralApplicability.Section6.2ScopeofIndemnificationSection6.3OtherIn'demnificationProvisions.Section6.4SurvivalofIndemnification.Section6.5InabilitytoLimitIndemnificationSection6.6Severability181818191919ARTICLEVIIOTHERMATTERSSection7.1BookstobeKept.Section7.2InterestofDirectorsandOfficersinTransactionsSection7.3CorporateSealSection7.4WhenNoticeorLapseofTimeUnnecessary20202121ARTICLEVIIIAMENDMENTSTOBY-LAWSSection8.1ByDirectors.ection8.2ByShareholders2121 KEYSPANENE<RGYCORPORATION(the"Company")By-LawsARTICLEIr~MEETINGSOFSHAREHOLDE<RSSection1.1AnnualMeetingsTheannualmeetingoftheshareholdersoftheCompanyshallbeheldatsuchdateandtimeasmaybedesignatedbytheBoardofDirectors,duringthemonthofFebruaryorMarchofeachyearfortheelectionofDirectorsorforanyotherproperbusinesswhichmaybetransactedatanannualmeeting.Section1.2SpecialMeetingsSubjecttotherightsoftheholdersofanyseriesofstockhavingapreferenceovertheCommonStock,oftheCompanyastodividendsoruponliquidation("PreferredStock")withrespecttosuchseriesofPreferredStock,specialshareholders'eetingsmaybecalledonlybytheChairmanorbytheBoardofDirectorspursuanttoaresolutionadoptedbyamajorityofthetotalnumberofDirectorswhichtheCompanywouldhaveiftherewerenovacancies.Atanyspecialmeeting,onlysuchbusinessmaybetransactedwhichisrelatedtothepurpose(s)setforthinthenoticeofsuchspecialmeetinggivenpttrsuanttoSection1.7oftheseBy-laws.Section1.3PlaceofMeetingsShareholders'eetingsshallbeheldattheprincipalofficeoftheCompanyoratsuchotherplaceasdesignatedfromtimetotimebytheBoardofDirectorsandstatedinthenoticeofsuchmeeting.Section1.4PresidingatMeetingsAtallshareholders'eetings,theChairman,thePresidentoraVicePresident,shallactasChairmanofthemeetingasprovidedforinSections4.5,4.7and4.8andtheSecretaryorAssistantSecretaryshallactasSecretaryofthemeetingasprovidedforinSection4.9.Section1.5QuorumHoldersofamajorityofthesharesoftheCompanyentitledt'ovotemustbepresent,inpersonorbyproxy,ateachshareholders'eetingtoconstituteaquorumatsuchmeeting,lessthanamajority,however,havingthepowertoadjourn.Whenaspecifieditemofbusinessisrequiredtobevotedonbyaclassorseries,votingasaclass,theholdersofamajorityofthesharesofsuchclassorseriesshallconstituteaquorumforthetransactionofsuchspecifieditemofbusiness.Whenaquorumisoncepresenttoorganizeameeting,itisnotbroke'nbythesubsequentwithdrawalofanysharcholdcrs.ExceptasmaybeprovidedbyorpursuanttotheCertificateofIncorporation,atallshareholders'eetingseachshareholderentitledtovoteshallbeentitledtoonevoteforeachshareheldbyhimorher,andmayvoteandotherwiseacteitherinpersonorbyproxy,asprovidedforinSection1.11.\Section1,6AdjourntnentTheChairmanofthemeeting,oramajorityofthesharessorepresentedatthemeeting,mayadjournthemeetingdespitetheabsenceofaquorum.Whenashareholders'eetingisadjournedtoanothertimeorplace,itshallnotbenecessarytogiveanynoticeoftheadjournedmeetingifthetimeandplacetowhichthemeetingisadjournedareannouncedatthemeetingatwhichtheadjournmentistaken,andattheadjournedmeetinganybusinessmaybetransactedthatmighthavebeentransactedontheoriginaldateofthemeeting.However,ifaftertheadjournmenttheBoardofDirectorsfixesanewrecorddatefortheadjournedmeeting,anoticeoftheadjournedmeetingshallbegiventoeachshareholderofrecordonthenewrecorddateentitledtonoticeunderthisSection1.6.
I,Section1',,NoticeofMeetingsIII'Writtennotice"ofthedate,timeandplaceofeveryshareholders'eetingshall'begivenpersonally,orbyfirstclassmail(notlessthanten(10)norinore'thanfifty(50)daysbeforeth'e'date"of'the"meeting)orbgthirdclassmail,(notlessthantwenty-four(24)normorethanfifty(50)daysbeforethedateofthemeeting)orasotherwiseinaybepermittedbylaw,to"eachshareholderofrecordasofthedatefixedby(heBoardofDirectors,pursuanttoSection1.9hereof,andsuchothernoticeshallbegivenasmay'berequiredbylaw'.'"lI:Noticeofaspecialshareholders'eetingshallindicatethatitisbeingissuedbyoratthedirectionofthepersonorpersonscallingthemeetingandshallstatethepurpose(s)forwhichthemeetingiscalled.'IilIlIfmailed,suchnoticeshallbedeemedgivenwhendepositedintheUnitedStatesmail,withpostagethereonprepaid,directedtotheshareholderathisorheraddressasitappearsontheshareholders'ist,record,or,ifheorshe,shallhavefiledwiththeSecretaryoftheCompanya,writtenrequestthatnoticesto'himor.herbe'mailedto,someotheraddress,.thendirectedtohimorheratsuchotheraddress.~~,llIfIl[Section1.8waiverandConsentNoticeofmeetingneednotbegiventoanyshareholder'whosubmits'asigned'waiverofnotice,iripersonorbyproxy;whetherbeforeorafterthemeeting.Theattendanceofanyshareholder'ataineeting,inpersonorbyproxy,withoutobjectingtothelackofnoticeofsuchmeetingprior'tothe'onclusionofMe"'meeting",shallconstituteawaiverofnoticebysuchshareholder.l,IlIIThetransactionsofanyshareholders'eeting,howevercalledandnoticed,areasvalidasthoughhadat'ameetingdulyheldafterregularcallandnotice,ifaquorumispresenteitherinpersonorbypr'oxy,andif,eitherbeforeorafterthemeeting,eachofthepersonsentitledtovote,notpresentinpersonorbyproxy,signsawrittenwaiverofnotice,oraconsenttotheholdingofthemeeting,oranapprovaloftheminutesthereof.IAllsuchwaivers,consentsorapprovalsshallbefiledwiththecorporaterecordsorm'adeapartoftheinutesofthemeeting.Executors,administrators,guardians,trustees,andotherfiduciariesentitledtovotesharesmaysignsuchwaivers,consentsandapprovals.I~IlI''ection1,9"FixingRecordDateIII~Fqrthepurposeofdeterminingtheshareholdersentitledtonoticeofortovoteatanyshareholders'eetingoranyadjournment-thereof,orforthepurposeofdeterminingshareholdersentitledtoreceivepaymentofanydividendortheallotmentofanyrights,orforthepurposeofanyotheraction,theBoardofDirectorsmayfix,inadvance,adateastherecorddateforanysuchdetermination.Suchdateshallnotbemorethanfifty(50)norlessthanten(10)daysbeforethedateofsuchmeeting,normore.thanfifty(50)days,beforethedateofsuchaction.,1IltI'ISection1.10ListofShareholdersatMeetingsAlistof'shareholdersasoftherecorddate,certifiedby"the,SecretaryoranyAssistantSecretary'orbyatr'ansferagent,shallbeproducedatanyshareholders'eetingupontherequestthereatorpriortheretoofanysh'areholdhr.Iftherighttovoteatanymeetingischallenged,theinspectors,orthepersonpresidingthereat,shallrequiresuchlistofshareholderstobeproducedas"evidenc'eoftherightofthepersonschallengedtovoteatsuchmeeting',andallpersonswhoappearfromsuchlisttobeshareholdersentitledtovotethereatmayvoteats'uchmeeting'.'b~',lSection1.11Proxies.rn(a)-.,Generally.EverypersonentitledtovoteorexecuteconsentsshallPavetheright..todosoeitherinpersonor.,byoneormoreagentsauthorized,byawrittenproxyexecutedbysuchpersonorhisdulyauthorizedgent-andfiledwiththeSecretary,oftheCompany.Anyexecutor,administrator,guardiani,trusteeorotherduciary,may,giveproxies.
(b)TermofProxies.Aproxyisnotvalidaftertheexpirationofeleven(11)monthsfromthedateofitexecution,unlessthelengthoftimeforwhichsuchproxyistocontinueinforceisotherwisespecifiedtherein,whichinnocaseshallexceedseven(7)yearsfromthedateofitsexecution.(c)RevocationandSuspensionofProxies.Anyproxydulyexecutedcontinuesinfullforceandeffectandisnotrevokeduntilaninstrumentrevokingit,oruntiladulyexecutedproxybearingalaterdate,isfiledwiththeSecretaryoftheCompany.Aproxyisnotrevokedbythedeathorincapacityofthemakerunless,beforethevoteiscountedortheauthorityisexercised,writtennoticeofthedeathorincapacityisgiventotheCompany.Notwithstandingthatavalidproxyisoutstanding,ifthepersonexecutingtheproxyispresentatthemeetingandelectstovoteinperson,thenthepowersoftheproxyholderaresuspended,exceptinthecaseofaproxycoupledwithaninterest(whichstatesthatfactonitsface).(d)VotingbyTivoorMoreProxies.Ifanyinstrumentofproxydesignatestwoormorepersonstoactasproxy,intheabsenceofanyprovisionintheproxytothecontrary,thepersonsdesignatedmayrepresentandvotethesharesinaccordancewiththevoteorconsentofthemajorityofthepersonsnamedassuchproxies.Ifonlyonesuchproxyispresent,suchproxymayvotealltheshares,andallthesharesstandinginthenameoftheprincipal(s)forwhomsuchproxyactsshallbedeemedrepresentedforthepurposeofobtainingaquorum.Theforegoingprovisionsshallapplytothevotingofsharesbyproxiesforanytwoormoreadministrators,executors,trustees,orotherfiduciaries,unlessaninstrumentororderofcourtappointingthemotherwisedirects.(e)Director'sDeterminationofExecutionandUseofProxies.TheBoardofDirectorsmay,inadvanceofanyannualorspecialmeetingoftheshareholders,prescribeadditionalregulationsconcerningthemannerofexecutionandfilingofproxiesandthevalidationofthesame,whichareintendedtobevotedatanysuchmeeting.Section1.12NoticeofShareholderBusinessandNominationsA.AnnualShareholders'eetings(1)NominationsofpersonsforelectiontotheBoardofDirectorsoftheCompanyandtheproposalofbusinesstobeconsideredbytheshareholdersmaybemadeatanannualshareholders'eeting(a)pursuanttotheCompany'snoticeofmeeting,(b)byoratthedirectionoftheBoardofDirectorsor(c)byanyshareholderoftheCompanywhowasashareholderofrecordatthetimeofgivingofnoticeprovidedforinthisSection1.12whoisentitledtovoteatthemeetingandwho'complieswiththenotice'ofprocedu'ressetforthinthisSection1.12.(2)Fornominationsorotherbusinesstobeproperlybroughtbeforeanannualmeetingbyashareholderpursuanttoclause(c)ofparagraph(A)(1)ofthisSection1.12ofArticleI,theshareholdermusthavegiventimelynoticethereofinwritingtotheSecretaryoftheCompanyandsuchotherbusinessmustotherwisebeapropermatterforshareholderaction.Tobetimely,ashareholder'snoticeshallbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCompanynotlaterthanthecloseofbusinessonthe60thdaynorearlierthanthecloseofbusinessonthe90thdaypriortothefirstanniversaryoftheprecedingyear'sannualmeeting;provided,however,thatintheeventthatthedateoftheannualmeetingismorethan30daysbeforeormorethan60daysaftersuchanniversarydate,noticebytheshareholdertobetimelymustbesodeliverednotearlierthanthecloseofbusinessonthe90thdaypriortosuchannualmeetingandnolaterthanthecloseofbusinessonthelaterofthe60thdaypriortosuchannualmeetingorthe10thdayfollowingthedayonwhichpublicannouncementofthedateofsuchmeetingisfirstmadebytheCompany.Innoeventshallthepublicannouncementofanadjournmentofanannualmeetingcommenceanewtimeperiodforthegivingofashareholder'snoticeasdescribedabove.Suchshareholder'snoticeshallsetforth(a)astoeachpersonwhomtheshareholderproposestonominateforelectionorreelectionasaDirectorallinformationrelatingtosuchpersonthatisrequiredtobedisclosedinsolicitationsofproxiesforelectionofDirectorsinanelectioncontest,orisotherwiserequired,ineachcasepursuanttoRegulation14AundertheSecuritiesExchangeActof1934,a~amended(the"ExchangeAct")andRule14a-11thereunder(includingsuchperson'swrittenconsenttobeih~
amedintheproxystatementasanomineeandtoservingasaDirectorifelected);(b)astoanyotherbusinessthat,theshareholderproposestobringbeforethemeeting,abriefdescriptionofthebusinessdesiredtobebroughtbeforethemeeting,thereasonsforconductingsuchbusinessatthemeetingandanymaterialinterestinsuchbusinessofsuchshareholderandthebeneficialowner,ifany,onwhosebehalf,theproposalismade;and(c)asto,theshareholdergivingthenoticeandthebeneficialowner,ifany,onwhose.behalfthenominationorproposalismade(i)thenameandaddressofsuchshareholder,astheyappearontheCompany'sbooks,andofsuchbeneficialownerand(ii)theclassandnumberofsharesoftheCompanywhichareownedbeneficiallyandofrecordbysuchshareholderandsuchbeneficialowner.(3)Notwithstandinganythinginthesecondsentenceofparagraph(A)(2)ofthisSection1.12ofArticleItothecontrary,intheeventthatthenumberofDirectorstobeelectedtotheBoardofDirectorsoftheCompanyisincreasedandthereisnopublicannouncementbytheCompanynamingallofthenomineesforDirectororspecifyingthesizeoftheincreasedBoardofDirectorsatleast70dayspriortothefirstanniversaryoftheprecedingyear-'sannualmeeting,ashareholder'snoticerequiredbyparagraph(A)ofSection1.12ofArticleIshallalsobeconsideredtimely,but'onlywithrespecttonomineesforanynewpositionscreatedbysuchincrease,ifitshallbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCompanynotlaterthanthecloseofbusinessonthe10thdayfollowingthedayonwhichsuchpublicannouncementisfirstmadebytheCompany.B.SpecialShareholders'eetingsOnlysuchbusinessshallbeconductedataspecialshareholders'eetingasshallhavebeenbroughtbeforethemeetingpursuanttotheCompany'snoticeofmeeting.NominationsofpersonsforelectiontotheBoardofDirectorsmaybemadeataspecialshareholders'eetingatwhichDirectorsaretobeelectedpursuanttotheCompany'snoticeofmeeting(a)byoratthedirectionoftheBoardofDirectorsor(b)providedthattheBoardofDirectorshasdeterminedthatDirectorsshallbeelectedatsuchmeeting,byanyshareholderoftheCompanywhoisashareholderofrecordatthetimeofgivingofnoticeprovidedforinthisSection1.12whoisentitledtooteatthemeetingandwhocomplieswiththenoticeproceduressetforthinthisSection1.12.Intheeventtheompanycallsaspecialshareholders'eetingforthepurposeofelectingoneormoreDirectorstotheBoardofDirectors,anysuchshareholdermaynominateapersonorpersons(asthecasemaybe),forelectiontosuchposition(s)as'specifiedintheCompany'snoticeofmeeting,iftheshareholder'snoticerequiredbyparagraph(A)(2)ofthisSection1.12ofArticleIshallbedeliveredtotheSecretaryattheprincipalexecutiveofficesoftheCompanynotearlierthanthecloseofbusinessonthe90thdaypriortosuchspecialmeetingandnotlaterthanthecloseofbusinessonthelaterofthe60thdaypriortosuchspecialmeetingorthe10thdayfollowingthedayonwhichpublicannouncementisfirstmadeofthedateofthespecialmeetingandofthenomineesproposedbytheBoardofDirectorstobeelectedatsuchmeeting.Innoeventshallthepublicannouncementofanadjournmentofaspecialmeetingcommenceanewtimeperiodforthegivingofashareholder'snoticeasdescribedabove.C.General(1)OnlysuchpersonswhoarenominatedinaccordancewiththeproceduressetforthinthisSection1.12ofArticleIshallbeeligibletoserveasDirectorsandonlysuchbusinessshallbeconductedatashareholders'eetingasshallhavebeenbroughtbeforethemeetinginaccordancewiththeproceduressetforthinthisSection1.12ofArticleI.Exceptasotherwiseprovidedbylaw,theChairmanofthemeetingshallhavethepower,anddutytodeterminewhetheranominationoranybusinessproposedtobebroughtbeforethemeetingwasmadeorproposed,asthecasemaybe,inaccordancewiththeproceduressetforthinthisSection1.12ofArticleIand,ifanyproposednominationorbusinessisnotincompliancewiththisSection1.12ofArticleI,todeclarethats'uchdefectiveproposalornominationshallbedisregarded.,(2)ForpurposesofthisSection1.12ofArticleI,."publicannouncement"shallmeandisclosureinapressreleasereportedbytheDowJonesNewsService,AssociatedPressorcomparablenationalnewsserviceorinaocumentpubliclyfiledbytheCompanywiththeSecuritiesandExchangeCommissionpursuanttoSection13,4,or15(d)oftheExchangeAct.
(3)Notwithstanding'theforegoing"provisionsofthisSection1.12'ofArticle','ashareholdershallalscomplywithallapplicablereqilirementsoftheExchangeActandthe'rulesandregulationsthereunderwithrespecttothematterssetforthinthisSection1.12ofArticleI.Nothin'ginthisSection1.12of'ArticleIshallbedeemedtoaffectanyrights(i)ofshareholderstorequestinclusionofproposalsintheCompany'sproxystatementpursuanttoRule14a-8'undertheExchangeActor(ii)oftheholders'ofanyseri'esof-PreferredStocktoelectDirectorsunderspecified'ciicu'mstances.1Section1.13InspectorsofElectionsVotingatshareholders'eetingsneednotbeconductedbyinspectors.unlessashareholderpresentinpersonorbyproxyandentitledtovoteatsuchmeetingsorequests,TheBoardofDirectors,inadvance,ofanyshareholders'eetingmayappointoneormoreinspectorsto,actatthemeetingoranyadjournmentthereof.Ifinspectorsarenotsoappointed,thepersonpresidingatashareholders'eetingmay,andontherequestofanyshareholderentitledtovote,thereatshall,appointtwoinspectors.Incaseanypersonappointedfailstoappearoract,thevacancymaybefilledbyappointmentmadebytheBoardinadvanceofthe,meetingoratthemeetingbythepersonpresidingthereat.Eychinspector,beforeenteringuponthedischargeofhisorherduties,;shalltakeandsignanoathfaithfullytoexecutethedutiesofinspectoratsuchmeetingwithstrictimpartialityandaccordingtothebestofhisorherability.Theinspectorsshalldeterminethenumberofsharesoutstandingandthevotingpowerofeach,thesharesrepresentedatthemeeting,theexistenceofaquorumandthevalidityandeffectofproxies,andshallreceivevotes,ballotsorconsents,hearanddetermineallchallengesandquestionsarisinginconnectionwiththerighttovote,countandtabulateallvotes,ballotsorconsents,determinetheresult,anddosuchactsasarepropertoconducttheelectionorvotewith,fairness,,toall,shareholders..Onrequestofthepersonpresidingat,themeetingoranyshareholderentitledtovotethereat,theinspectorsshallmake,areportinwritingofanychallenge,questionormatterdeterminedbythemandexecuteacertificateofanyfactfoundby.them.5~Section1.14VoteofShareholdersSubjecttotherightsofholdersofanyseriesofPreferred'Stock,'Directois"shall,exceptasotherwiserequiredbylaworbytheCertificateof'Incorporation,'beelectedbyapluralityofthevotescas'tatameetingofshareholdersbytheholdersofsharesentitledtovoteintheelection.Subjecttotherightsofholder'sofanyseriesofPreferredStock,wheneveranycoiporateaction,otherthantheelectionofDirectors,'istobetakenbyvoteoftheshareholders,itshall,exceptasotherwisere'quiredbylaworbytheCertific'ateofIncorporation,be"authorizedbyamajorityofthevotescastatameetingofshareholdersbytheholdersofsharesentitledtovotethereon.ARTICLEHBOARDOFDIRECTORS/Section2.1NumberofDirectorsTheaffairsofthisCompanyshallbemanagedbynolessthan.ninenormorethantwelveDirectorsasfixedbyresolutionadoptedbyamajorityoftheentireB'oard.~,Section2.2Elections,TermsandVacanciesfTheBoardofDirectorsshallbedividedintothreeclassesdesignatedClassI,ClassIIandClassIII.SuchclassesshallbeasnearlyequalinnumberasthethentotalnumberofDirectorsconstitutingtheentireBoardpermits.Atthefirstannualmeeting'ofshareholders,'r-anyspecialmeetinginlieuthereof,ClassI,ClassIIandClassIIIDirectorsshallbeelectedfortermsexpiringatthenextsucceedingannu'almeeting,thesecondsucceedingannualmeetingandthethirdsucceedingannualmeetin'g,respectively,anduntiltheirrespectivsuccessorsareelectedandqualified.Ateachannualshareholders'eetingaftersuch'firstannual(orspecialI14 ectingofshareholders,theDirectorschosentosucceedthoseintheclasswhosetermsthenexpireshallbeelectedbyshareholdersfortermsexpiringatthethirdsucceedingannualmeetingafterelection,orforsuchlessertermforwhichoneormoremaybe'nominatedinaparticularcaseinordertoassurethatthenumberofDirectorsineachclassshallbeappropriatelyconstitutedanduntiltheirrespectivesuccessorsareelectedandqualified.NewlycreatedDirectorshipsoranydecreaseinDirectorshipsresultingfromincreasesordecreasesinthenumberofDirectorsshallbesoapportionedamongtheclassesofDirectorsastomakealltheclassesasnearlyequalinnumberaspossible.VacanciesontheBoardatanytimeandforanyreasonexcepttheremovalofDirectorswithoutcausemaybefilledbyamajorityofthe,Directorstheninoffice,althoughlessthanaquorum.ADirectorelectedtofillavacancy,unlesselectedbytheshareholders,shallholdofficeuntilthenextmeetingofshareholdersatwhichtheelectionofDirectorsisintheregularorderofbusiness,anduntil'hisorhersuccessorhasbeenelectedandqualified.Notwithstandingtheforegoing,whenevertheholdersofanyoneormoreclassesorseriesofStock(otherthantheCommonStock),noworhereafterauthorized,shallhavetheright,votingseparatelybyclassorseries,toelectDirecto'rsatanaiinual'orspecialshareholders'neeting,theelection,termofoffice,fillingofvacanciesandotherfeaturesofsuchDirdctorshipsshallbegovernedbyanytermsoftheCertificateofIncorporationoftheCompanyapplicablethereto,andsuchDirectorssoelectedshallnotbedividedintoclassespursuanttothisSection2.2unlessexpresslyprovidedbysuchterms.Section29MeetingsoftheBoardAnannualmeetingoftheBoardofDirectorsshallbeheldineachyearassoonaspracticableaftertheannualmeetingofshareholders,Regularmeetingsofthe,Boardshallbeheld.atsuchtimesasmaybefixedbytheBoard.NonoticeneedbegivenofannualorregularmeetingsoftheBoardofDirectors.Section2.4NoticeandAdjourmnenrNoticeofeachspecialmeetingoftheBoardshallbegiventoeachdirectoreitherbymailnotlaterthanoon,NewYorktime,onthefifthbusinessdaypriorto"themeetingorby'telegram,byfacsimiletransmission,ywrittenmessageororallytotheDirectorsnotlaterthannoon,NewYorktime,onthedaypriortothemeeting.Noticesshall'bedeemedtohavebeengivenbymailwhendepositedintheUnitedStatesmail,bytelegramatthetimeoffiling,byfacsimiletransmissionuponconfirmationofreceipt,and,bymessengeratthetimeofdeliverybythemessenger.Noticesbymail,telegram,facsimiletransmissionormessengershallbesenttoeachDirectorattheaddressorfacsimilenumberdesignatedbyhimorherforthatpu'rpose,or,ifnonehasbeensodesignated,athisorherlastknownresidenceor'businessaddress.NoticeofameetingoftheBoardofDirectorsneednotbegiventoanyDirectorwhosubmitsasignedwaiverofnoticewhetherbeforeorafterthemeeting,orwhoattendsthemeetingwithoutprotesting,priortheretooratitscommencement,thelackofnoticetohimorher.Anoticeorwaiverofnoticeneednot,specifythepurposeofanymeetingoftheBoardofDirectors.AmajorityoftheDirectorspresent,whetherornotaquorumispresent,mayadjournanymeetingtoanothertimeandplace.NoticeofanyadjournmentofameetingtoanothertimeorplaceshallbegiveninthemannerdescribedabovetotheDirectorswhowerenotpresentatthetimeoftheadjournmentand,unlesssuchtimeandplaceareannouncedatthemeeting,totheotherDirectors.Section2SFiscalYearThefiscalyearoftheCompanyshallbefixedbytheBoardofDirectors.Section2.6QuandUnlessagreaterquorumisrequiredbylaw,amajorityofthenumberofdirectorsatthetimeservingontheBoardofDirectorsshallconstituteaquorumforthetransactionofbusiness,orofanyspecifieditemofbusiness,provided,however,thataquorumshallnotconsistoflessthanone-thirdoftheentireBoardofDirectors.ExceptwhereotherwiseprovidedbylaworintheCertificateofIncorporationortheseBy-Laws,thevoteofamajorityftheDirectorspresentatameetingatthetimeofsuchvote,ifaquorumisthenpresent,shallbetheactoftheoard.
Section2.7"'nanimousWrittenConsentAnyaction,authorized,inwriting,byalloftheDirectorsentitledtovotethereonandfiledwiththeminutesoftheCompanyshallbetheactoftheBoardwiththesameforceandeffectasifthesamehadbeenpassedbyunanimousvoteatadulycalledmeetingoftheBoard.Section2.8ResignationofDirectorsAnyDirectoroftheCompanymayresignatanytime.Suchresignationshallbemadeinwritingandshalltakeeffectatthetimespecifiedtherein,or,ifnotimebespecified,atthetimeofitsreceiptbytheChairmanorSecretary.Theacceptanceofaresignationshallnotbenecessarytomakeiteffectiveunlesssospecifiedtherein.Section2.9RemovalofDirectorsDirectorsmayberemovedforcausebyavoteofshareholdersentitledtovotethereon,orbyactionoftheBoardofDirectors.Directorsshallnotberemovedwithoutcausebyvoteoftheshareholders,exceptinthecaseofaDirectorelectedbytheholdersofanyclassorseries(otherthantheCommonStock),noworhereafterauthorized,votingasaclassorseries,whensoentitledbytheprovisionsoftheCertificateofIncorporationapplicablethereto.Section2.10CompensationofDirectorsMembersoftheBoardshallreceivesuchfeesandcompensationfixedfromtimetotimebytheBoardandshallbereimbursedforreasonableexpensesforattendingBoardMeetings.Section2.11TimeandPlaceofMeetingsMeetingsoftheBoardofDirectorsshallbeheldinsuchmonthonsuchdayatsuchhourandatsuchplacastheBoardmayfromtimetotimedirect.Section2.12SpecialMeetingsSpecialmeetingsoftheBoardmaybeheldonthecalloftheChairman,thePresidentortheSecretaryoruponwrittenrequestofamajorityoftheDirectors"atthetimeservingontheBoardaddressedtotheSecretary.Section2.13TelephonicMeetingsAnyoneormoremembersoftheBoardoranycommitteeoftheBoardmayparticipateinameetingoftheBoardorcommitteebymeansofaconferencetelephoneorsimilarcommunicationsequipmentallowingallpersonsparticipatinginthemeetingtoheareachotheratthesametime',andparticipationbysuchmeansshallconstitute'presenceinpersonatameeting.L-16 ARTICLEIIICOMMITTEESSection3.1OrganizationandAuthorityTheBoardofDirectors,byresolutionadoptedbyamajorityoftheentireBoard,maydesignatefromamongitsmembers,suchcommitteesastheBoardofDirectorsmayfromtimetotimedetermine,includingthosecreatedbySections3.2,3.3and3.4ofthisArticleIII,eachconsistingofthreeormoreDirectors,andeachofwhich,totheextentprovidedintheresolution,shallhavealltheauthorityoftheBoard,exceptthatnosuchcommitteeshallhaveauthorityasto(1)thesubmissiontoshareholdersofanyactionthatneedsshareholders'pproval;(2)thefillingofvacanciesintheBoardorinanycommitteethereof;(3)thefixingofcompensationoftheDirectorsforservingontheBoardoronanycommitteethereof;(4)theamendmentorrepealoftheBy-Laws,ortheadoptionofnewBy-Laws;(5)theamendmentorrepealofanyresolutionoftheBoardwhich,byitsterms,shallnotbesoamendableorrepealable;(6)thefixingorchangingofthesizeoftheBoard;or(7)theremovalorindemnificationofDirectors.Intheeventoftheabsenceofanymember(s)fromameetingofacommitteereplacementsmaybemadefromDirectorsdesignatedasalternatemembersofsuchcommitteebytheBoard.TheChairman,orinhisabsenceorshouldhesodirect,thePresident,orinhisabsence,aVicePresident,ifsuchoffi'cers'aremembersofthecommittee,shallpresideatmeetingsofthecommittee,otherwisethepresidingofficershallbedesignatedbymajorityvoteofthecommittee.VacanciesinthemembershipofthecommitteeshallbefilledbytheBoardofDirectorsataregularorspecialmeetingoftheBoardofDirectors.UnlesstheBoardofDirectorsotherwiseprovides,eachcommitteedesignatedbytheBoardmayadopt,amendandrepealrulesfortheconductofitsbusiness.Section3.2ExecutiveCommitteeE~ThereshallbeanExecutiveCommitteeofnotmorethansix(6)Directorstobe,designatedbytheBoard.eExecutiveCommitteeshallhaveandmayexercisealloftheauthorityandpowersoftheBoardsubjecttoimitationsprescribedbylawortheseby-laws.TheSecretaryoftheCompanyshallbetheSecretaryoftheExecutiveCommittee.Section3;3OrganizationandNominatingCommitteeThereshallbeanOrganizationandNominatingCommitteeofnotmorethansix(6)DirectorstobedesignatedbytheBoard.TheOrganizationandNominatingCommitteeshallhaveandmayexercisealloftheauthorityandpowersoftheBoardnecessarytoaddressexecutivecompensation,reviewmanagementsuccessionplansandrecommendnomineestotheBoard,subjecttolimitationsprescribedbylawortheseby-laws.TheSecretaryoftheCompanyshallbetheSecretaryoftheOrganizationandNominatingCommittee.Section3.4AuditCommitteeThereshallbeanAuditCommitteeofnotmorethansix(6)DirectorstobedesignatedbytheBoard.TheAuditCommitteeshallhaveandmayexercisealloftheauthorityandpowersoftheBoard,necessarytoreviewandmonitoraccountingandcontrolprocedures,generalauditingandbusinesspractices,externalfinancialreportingpractices,andethicalstandardsfortheCompany,subjecttolimitationsprescribedbylawortheseby-laws.TheSecretaryoftheCompanyshallbetheSecretaryoftheAuditCommittee.Section3.5Actionb'yaCommitteeThea'ctofamajorityofthemembersofacommitteepresentatanymeetingatwhichaquorumispresentshallbetheactofsuchcommittee.Themembersofacommitteeshallactonlyasacommittee,andtheindividualembersthereofshallhavenoindividualpowersassuch.Eachcommitteemaymakesuchrulesasitmaydeempedientfortheregulationandcarryingonofitsmeetingsandproceedings.
Section3.6QuorumIAmajorityofthemembersofacommitteeshallconstituteaquorum.Section3.7ReportstoBoardofDirectors"Each'suchcommitteeshallkeeparecordofitsproceedingsandmakereportstotheBoardatitsnext'regularmeeting."JJ(HJ;Section3.8,CompensationofCommitteeMembersIMembers'fcommitteesofthe'BoardshallreceivesuchfeesandcompensationasfixedfromtimetotimebytheBoardandshallbereimbursedforreasonableexp'ensesforatte'ndingcommitteemeetings.IJIIII~I,I'Section3.9ResignationandRemovalofCommilteeMembers,Anymemberofanycommitteemayresignatanytime.Suchresignationshallbemadeinwritingand,shalltakeeffectatthetimespecifiedtherein,,or,ifnotimebespecified,atthetimeofitsreceiptbytheChairmanorSecretary.Theacceptanceofaresignationshallnotbenecessarytomakeiteffectiveunlesssospecifiedtherein.CommitteemembersmayberemovedbyactionoftheBoardofDirectors,withorwithoutcause.Section3.10UnanimousWrittenConsentAnyactionauthorizedinwriting,byallofthemembersofacommitteeandfiledwiththeminutesofthe.,Company'shall.betheactofthatcommitteewiththesameforceandeffectasif;thesamehadbeenpassedbyunanimousvote'athdulycalled'meetingofsuchcommittee.('JSection3.11PlaceofCommitteeMeetingsthemembersoftheasnoticeofspecialMeetingsofeachcommitteeshallbeheldinsuchmonthonsuchdayatsuchhourandatsuchplaceassuchcommitteemayfromtimetotimedirect.~'Ji~'HI.Section3.12JNoiice,JI~'..'rUnlessotherwiseprovidedbyresolutionoftheBoardorbyvoteofamajority'ofrelevantcommittee,noticeofcommitteemeetingsshallbegiveninthesamemannermeetingsoftheBoardistobegivenunderSection2.4oftheseBy-Laws.'(ARTICL'EIVOFFICERSANDTHEIRDUTIESJI.Section4,1OfficersAssoonasmaybeaftertheelectionoftheDirectorsatameetingoftheshareholders,theBoardofDirectorsshallelectoneofitsnumberPresident,andmayelectoneofitsnumberChairman.ThePresidentshallbetheChiefExecutiveOfficerexceptthatifaChairmanbeelected,theBoardmaydesignateeithertheChairmanorthePresidentasChiefExecutiveOfficer.Anytwoormoreofficesmaybeheldbythesameperson,excepttheofficesofPresident'andSecretary.TheBoardmayelectorappointsuchotherofficersandagentsasit'maydeeproper.I.'I" Section4.2TennafOfjice;Resignation;Removal;VacanciesExceptasotherwiseprovidedintheresolutionof.theBoardofDirectorselectingorappointinganyofficer,allofficersshallbeelectedorappointedtoholdofficeuntilthemeetingoftheBoardofDirectorsfollowingthenextsucceedingannualmeetingofshareholders.Eachofficershallholdofficeforthetermforwhichheorsheiselectedorappointed,anduntilhisorhersuccessorhasbeenelectedorappointedandqualified.AnyofficermayresignatanytimebygivingwrittennoticetotheBoardortotheChairman,ifany,orthePresidentortheSecretaryoftheCompany.Suchresign'ationshalltakeeffectattlietimespecifiedtherein,andunless'otherwisespecifiedthereinrioacceptanceofsuchresignationshallbenecessarytomakeiteffective.AnyofficermayberemovedbytheBoard,withorwithoutcause,atanytime.Removalofanofficerwithoutcauseshallbewithoutprejudicetohisorhercontractrights,ifany,"withtheCompany,buttheelectionorappointmentofanofficershallnotofitselfcreatecontractrights.'AnyvacancyoccurringinanyofficeoftheCompanybydeath,resignation,removalorotherwisemaybe'filledfortheunexpiredportionofthetermbytheBoard.Section4.3PowersandDutiesTheofficersoftheCompanyshallhavesuchauthorityandperformsuchdutiesinthemanagementoftheCompanyasmaybeprescribedbytheBoardofDirectorsand,totheextentnotsoprescribed,asgenerallypertaintotheirrespectiveoffices,subjecttothecontroloftheJ3oard.SecuritiesofothercompaniesheldbytheCompanymaybevotedbyanyofficerdesignatedby;,'heBoardand,intheabsenceofanysuchdesignation,bytheChairman,thePresident,anyVicePresident,theSecretaryortheTreasurer.TheBoardmayrequireanyofficer,agentoremployeetogivesecurityforthefaithfulperformanceofhisduties.Section4.4SalariesSalariesofallofficersoftheCompanyshallbefixedbytheBoardfromtimetotime;andsalariesofallitheremployeesoftheCompanyshallberegulatedbytheChiefExecutiveOfficer.Section4.5ChairmanTheChairmanshallpresideatallmeetingsoftheshareholdersandtheBoardofDirectorsatwhichheorsheshallbepresent.WhentheChairmanisalsodesignatedtheChiefExecutiveOfficer,heorsheshallhavegeneralandactivemanagementofthebusinessoftheCompanyandshallseethatallordersandpoliciesoftheBoardofDirectorsarecarriedintoeffect.Section4.6ViceChairmanTheViceChairmanshalldoandperformallsuchdutiesasshallbeassignedtohimorherbytheChairmanorrequiredbytheBoardofDirectors.Section4.7PresidentIntheabsenceofaChairmanorshouldtheChairmansodirect,thePresidentshallpresideatallmeetingsoftheshareholdersandoftheBoardofDirectorsatwhichheorsheshallbepresent.InthecaseoftheChairmanhavingbeendesignatedasChiefExecutiveOfficer,thePresidentshall(subjecttothedirectionoftheChairman)exercisegeneralcontrolandsupervisionover,alltheaffairsoftheCompanyandgenerallydoandperformthosedutiesasusuallyappertaintotheofficeofthePresident,orwhichmaybeassignedtohimorhcrbytheBoardofDirectors.ShouldtherebenoChairmanorshouldthePresidentbedesignatedChiefExecutiveOfficeroftheCompany,thePresidentshallhavegeneralandactivemanagementofthebusinessoftheCompanyandshallseeatallordersandpoliciesoftheBoardofDirectorsarecarriedintoeffect;andthesalariesofallemployeesofeCompany,otherthanofficers,shallberegulatedbyhimorher.IftheofficeoftheChairmanbevacated,due totheincumbent'sdeath,retirement,orinabilitytoact,orshouldtheDirectorselecttoleavesuchofficevacant,thePresidentshallbetheChiefExecutiveOfficerandshallassumeallthedutiesasoutlinedinSection4.5ofthisArticleIV,untildirectedotherwisebytheBoardofDirectors.'ection4.8VicePresident,TheVicePresidents,respectively,shalldoandperformallsuchdutiesasshallbeassignedtothembytheChairmanor,thePresidentorrequiredofthembytheBoardofDirectors.Ifdesignatedbythe,BoardofDirectorsasamemberoftheExecutiveCommittee,a.VicePresidentshallperformthedutiesofPresidentincaseofthePresident'sabsenceorinabilitytoactorincaseofavacancyinthatoffice.AnAssistantVicePresidentintheabsenceordisabilityofaVicePresidentmayatthediscretionoftheChairmanorthePresidentperformthedutiesofaVicePresidentandshallperformsuchotherdutiesasmaybeassignedtohimorher.Section4.9SecretaryItshallbethedutyoftheSecretarytokeepandattesttruerecordsoftheproceedingsofallmeetingsoftheBoardandExecutiveCommittee,toseethatallnoticesaredulygiven<inaccordancewiththeprovisionsoftheseBy-Lawsorasrequiredbylawandsafelykeepandaccountfor'alldocuinents,papersandpropertyoftheCompanywhichmaycomeintohisorherpossession.HeorsheshallbethecustodianoftheCorporateSealoftheCompanyandshallaffixandattestthesamewheneveritisnecessaryandpropersotodo,andshallperformsuchotherdutiesasmaybeassignedtohimbytheBoard.IntheabsenceordisabilityoftheSecretary,anAssistantSecretaryoranyVicePresidentshallperformhisdutiesandsuchotherdutiesasmaybeassignedtohimorher.Section4.10TreasurerTheTreasurershallhavethecustodyofallmoney,funds,securitiesandvaluablepapersoftheCompany.Heorsheshallfurnishsuchsecurityforthefaithfulperformanceofhisorherduties'asmayberequiredbytheBoardofDirectors.HeorsheshallreceiveallmoneyduetotheCompanyanddeposit,thesameinitscorporatenameinsuchBanksorTrustCompaniesastheBoardofDirectorsshalldetermine.'IHeorsheshallsignallchecks,draftsorordersforthepaymentofmoney;andperformsuchotherduties'asmayberequiredofhimorherbytheBoardofDirectors.AnAssistantTreasurershall,intheabsenceordisability'ftheTreasurer,performhisorherdutiesandsuchotherdutiesasmaybeassignedtohimorher.IntheabsenceordisabilityoftheTreasurerandAssistantTreasurers,anyVicePresidentshallperformhisorherdutiesandsuchotherdutiesasmaybeassignedtohimorher.TheTreasurershall,whendirectedbytheBoardofDirectors,openspecialaccountsintheCompany'sdepositories;allchecks,draftsorordersforthepaymentofmoneyoutofsuchspecialaccountsshallbesignedinsuchmannerandbysuchofficersoremployeesoftheCompanyastheBoardofDirectorsshalldesignate;suchchecks,draftsorordersforthepaymentofmoneyshallalsobesigned,if,asandwhensodirectedbyresolutionoftheBoardofDirectors,bysuchpersonsandinsuchmannerastheBoardofDirectorsshalldetermine.Section4.11ComptrollerTheComptrollershallhavechargeofaccountingandrelatedrecords.Heorsheshallsignchecks,draftsorordersforthepaymentofmoney;suchchecks,draftsandorderstobealsosignedbytheTreasurer,andperformsuchotherdutiesasmayberequiredofhimorherbytheBoardofDirectors.AnAssistant,Comptrollershall,intheabsenceordisabilityoftheComptroller,performhisorherdutiesandsuchotherduties'asmaybeassignedtohimorher.IntheabsenceordisabilityoftheComptrollerandAssistantComptroller,theChairman,thePresidentor.aVicePresident,shallsignallchecks;draftsorordersforthepaymentofmoney;suchchecksdraftsandorderstobealsosignedbyanyotherauthorizedofficer.L-20 ARTICLEV~SHARESCERTIFICATEDSHARE~SSection5.1Certijicates,RegistrarandTransferAgentTheSharesoftheCompanymayberepresentedbycertificatesinsuchformsastheBoardofDirectorsmayprescribe,signedbytheChairman,thePresidentoraVicePresidentandtheSecretaryoranAssistantSecretaryortheTreasureroranAssistantTreasurer,andsealedwiththesealoftheCompanyandregisteredbysuch'BankorTrustCompanyasmaybedesignatedbytheBoard.IftheCompanyisauthorizedtoissuesharesofmorethanoneclass,eachcertificaterepresentingsharesissuedbytheCompanyshallsetforthuponthe,faceorbackofthecertificate,orshallstatethattheCompanywillfurnishtoanyshareholderuponrequestandwithoutcharge,afullstatementofthedesignation,relativerights,preferencesandlimitationsofthesharesofeachclassauthorizedtobeissuedandthedesignation,relativerights,preferencesandlimit'ationsofeachseriesofanyclassofpreferredsharesauthorizedtobe'issuedinseriessofarasthesamehavebeenfixedandtheauthority'oftheBoardofDirectorstodesignateandfixtherelativerights,preferencesandlimitationsofotherseries.Eachcertificaterepresentingsharesshallstateuponthefacethereof(1)thattheCompanyisformedunderthelawsoftheStateofNewYork;(2)thenameofthepersonorpersonstowhomissued;and(3)thenumberandclassofshares,andthedesignationoftheseries,ifany,whichsuchcertificaterepresents.Section5.2AuthorizationofFacsimileSignaniresandSealTheBoardofDirectorsmayauthorizethesignaturesoftheChairman,thePresident,aVicePresident,theSecretaryoranAssistantSecretary,andtheCorporateSealoftheCompany,tobefacsimiled,engravedorrinted.ISection5.3TransferofCertificaredSharesTheSharesoftheCompanyshallbetransferableorassignableinpersonorbyattorney,onlyonthebooksoftheCompany,uponthesurrenderofthecertificaterepresentingthesharestobetransferredorassignedwithproperendorsement'onthecertificateoronaseparateaccompanyingdocument,togetherwithsuchevidenceofthepaymentoftransfertaxesandcompliancewithotherprovisionsoflawastheCompanyoritstransferagentmayrequire.TheTransferAgentoftheCompanyshallbesuchBankorTrustCompanyasmaybedesignatedbytheBoard.Section5.4Lost,StolenorDestroyedShareCertificatesTheCompanymayissueanewcertificateforsharesinplaceofanycertificatetheretoforeissuedbyit,allegedtohavebeenlostor'destroyed,andtheCompanymayrequiretheownerofthelostordestroyedcertificate,orsuchow'ner'slegalrepresentative,togivetheCompa'nyabondsufficienttoindemnifyitagainstanyclaimthatmaybemadeagainstitonaccountoftheallegedlossordestructionofanysuchcertificateortheissuanceofanysuchnewcertificate.''UNCERTIFICATEDSHARES'Section5.5UncertificaredSharesThesharesoftheCompanymaybeuncertificatedshares.Withinareasonabletimeaftertheissuance,orwithintwobusinessdaysafteratransfer,ofuncertificatedshares,theCompanyshallsendawrittennoticetotheisteredownerofsuchsharesandtoanyotherpartyrequiredbylawtoreceivesuchnotice.Eachsuchnoticeallstate(1)thattheCompanyisformedunderthelawsoftheStateofNew.York;(2)thenameoftheperson orpersonstowhomissued;(3)thenumberandclassofshares,andthedesignationoftheseries,ifany,witrespecttowhichsuchnoticewasissued;and(4)anyotherinformationrequiredbylawtobecontainedtherein.IftheCompanyisauthorizedtoissuesharesofmorethanoneclass,eachsuchnoticeshallcontain,orshallstatethattheCompanywillfurnishtoanyshareholderuponrequest.andwithoutcharge,afullstatementofthedesignation,relativerights,preferencesandlimitationsofthesharesofeachclassauthorizedtobeissuedandthedesignation,relativerights,preferencesandlimitationsofeachseriesofanyclassofpreferredsharesauthorizedtobeissuedinseriessofarasthesamehavebeenfixedandtheauthorityoftheBoardofDirectorstodesignateandfixtherelativerights,preferencesandlimitationsofotherseries.Exceptasotherwiseexpresslyprovidedbylaw,therightsandobligationsoftheholdersofuncertificatedsharesrepresentingsharesofthesameclassandseriesshallbeidentical.Section5.6TransferofUncerrijicaledSfiaresSharesoftheCompanyshallbetransferableontherecordofshareholdersuponpresentationtotheCompanyoratransferagentofatransferrequestindicatingthesharesrequestedtobetransferred,withproperendorsementonaseparateaccompanyingdocument,togetherwithsuchevidenceofthepaymentoftransfertaxesandcompliancewithotherprovisionsoflawastheCompanyoritstransferagentmayrequire.IARTICLEVIINDEMNIFICATIONSection6.1GeneralApplicabilityExcepttotheextentexpresslyprohibitedbytheNewYorkBusinessCorporation,Law,theCompanyshallindemnifyeachpersonmade,orthreatenedtobemade,apartytoanyactionorproceeding,whethercriminalorcivil,byreasonofthefactthatsuchpersonorsuchperson'stestatororintestateisorwasaDirectororOfficeroftheCompany,againstjudgments,fines,penalties,amountspaidinsettlementandreasonableexpenseincludingattorney'sfeesandexpenses,reasonablyincurredinenforcingsuchperson'srighttoindemnificatioincurredinconnectionwithsuchactionorproceeding,oranyappealtherein,providedthatnosuchindemnificationshallbemadeifajudgmentorother,finaladjudicationadversetosuchpersonestablishesthatsuchperson'sactswerecommittedinbadfaithorweretheresultofactiveanddeliberatedishonestyandwerematerialtothecauseofactionsoadjudicated,orthatsuchpersonpersonallygainedinfactafinancialprofitorotheradvantagetowhichsuchpersonwasnot,legallyentitled,andprovidedfurtherthat.nosuchindemnificationshallberequiredwithrespecttoanysettlementorothernonadjudicateddispositionofanythreatenedorpendingactionorproceedingunlesstheCompanyhasgivenitspriorconsenttosuchsettlementorotherdisposition.Section6.2ScopeofIndemnification,TheCompany,shalladvanceorpromptlyreimburseuponrequesttoanypersonentitledtoindemnificationhereunderallreasonable,expenses,includingattorney'sfeesandexpenses,reasonablyincurredindefendinganyactionorproceedinginadvanceofthefinaldispositionthereofuponreceiptofanundertakingbyoronbehalfofsuchpersontorepaysuchamountifsuchpersonisultimatelyfoundnottobe,entitledtoindemnificationor,whereindemnificationisgranted,totheextenttheexpensessoadvancedorreimbursedexceedtheamounttowhichsuchpersonisentitled;provided,however,thatsuchpersonshallcooperateingoodfaithwithanyrequestbytheCompanythatcommoncounselbeusedbythepartiestoanactionorproceedingwhoaresimilarlysituatedunlesstodosowouldbeinappropriateduetoactualorpotentialdifferinginterestsbetweenoramong'suchparties.Section6.3OtherIndemnificationProvisionsNothing,hereinshalllimitoraffectanyrightofanyDirector,Officerorothercorporatepersonnelotherwisethanhereundertoindemnificationorexpenses,includingattorney'sfees,underanystatute,rule,regulatiocertificateofincorporation,by-law,insurancepolicy,contractorotherwise;withoutaffectingorlimitingtlL-22 ghtsofanyDirector,OfficerorothercorporatepersonnelpursuanttothisArticleVl,theCompanyisauthorizedtoenterintoagreementswithanyofitsDirectors,Officersorothercorporatepersonnelextendingrightstoindemnificationandadvancementofexpensestothefullestextentpermittedbyapplicablelaw.UnlesslimitedbyresolutionoftheBoardoEDirectors'orotherwise,theCompanyshalladvancethepaymentofexpensestothefullestextentpermittedbyapplicablelawto,andshallindemnify,anyDirector,OfficerorothercorporatepersonwhoisorwasservingattherequestoftheCompany,asadirector,officer,partner,trustee,employeeoragentof'anothercorporation,whetherforprofitornot-for-profit;orapartnership,jointventure,trustorotherenterprise,whetherornotsuchotherenterpriseshallbeobligatedfoindemnifysuchperson.IPSection6.4SurvivalofIndemnificationAnythingintheseBy-lawstothecontrarynotwithstanding,noeliminationoramendmentofthisArticleVladverselyaffectingtherightofanypersontoindemnificationoradvancementofexpenseshereundershallbeeffectiveuntilthe60thdayfollowingnoticetosuchpersonofsuchaction,andnoeliminationoforAmendmenttothisArticleVIshalldepriveanysuchperson'srightshereunderarisingoutofallegedoractualoccurrences,actsorfailurestoactpriortosuch60thday.hI'I'Section6SInabilitytoLimitIndemnificationTheCompanyshallnot,exceptbyeliminationoramendmentofthisArticleVIinamannerconsistentwiththeprecedingSection6.4andwiththeprovisionsofArticleVIII("AmendmentstoBy-Laws"),takeanycorporateactionorenterintoanyagreementwhichprohibits,orotherwiselimitstherightsofany,personto,indemnificationinaccordancewiththeprovisionsofthisArticleVI.TheindemnificationofanypersonprovidedbythisArticleVIshallcontinueaftersuchpersonhasceasedtobeaDirectororOfficerof'theCompanyandshallinuretothebenefitofsuchperson'sheirs,executors,administra'torsandlegalrepresentatives.tSection6,6SeverabilityIncaseanyprovisioninthisArticleVIshallbedeterminedatanytimetobeunenforceableinanyrespect,theotherprovisionsofthisArticleVIshallnotinanywaybeaffectedorimpairedthereby,an'dtheaffectedprovisionshallbegiventhefullestpossibleenforcementinthe"circumstances,itbeingtheintentionoftheCompanytoaffordindemnificationandadvancementofexpenses'toitsDirectorsor'fficers,actinginsuchcapacitiesorintheothercapacitiesmentionedherein,to*thefullestextentpermittedbylaw.ARTICLEVHOTHER'MATTERSIPIIWSection7w1BookstobeKeptWTheCompanyshallkeep(a)correctandcompletebooksandrecordsofaccount,(b)minutesoftheproceedingsoftheshareholders,BoardofDirectorsandExecutiveCommittee,ifany,'and(c)acurrentlistoftheDirectorsandOfficersandtheirrbsidenceaddresses.TheCompanyshallalsokeep,atitsofficelocatedintheCountyofKingsintheStateofNewYorkorattheofficeofitstransferagentorregistrarintheStateofNewYork,ifany,arecordcontainingthenamesandaddressesofallshareholders,thenumberand'classofsharesheldbyeachandthedateswhentheyrespectivelybecametheow'nersofrecordthereof.Anyoftheforegoingbooks,minutesorrecordsmaybeinwrittenformorinanyotherformcapableofbeingconvertedintowrittenformwithinareasonabletime.INSection7.2InterestofDirectorsand0+cersinTransactionsIntheabsenceoffraud,nocontractorothertransactionbetweentheCompany'ndoneor'moreofitsirectors,orbetweentheCompanyandanyothercompany,firm,associationorotherentityinwhichoneororeofitsDirectorsareDirectorsorOfficers,orhaveasubstantialfinancialinterest,shallbeeithervoidorL-23 voidable,'rrespectiveofwhethersuchint'crestedDirectororDirectorsarepresentatthemeetingoftheBoardoDirectors,orofacommitteethereof;whichapproves,suchcontractortransactionandirrespectiveofwhetherhis,herortheirvotesarecountedfor.suchpurpose:IC%(1)Ifthe.materialfactsas.tosuchDirector'sinterestinsuchcontractortransactionandastoanysuchcommon-Directorship,officershiporfinancialinterestaredisclosedingoodfaithorknowntotheBoardofDirectors,oracommitteethereof,andtheBoardorcominitteeapprovessuchcontractortransactionbyavotesufficientforsuchpurposewithoutcountingthevoteofsuchinterestedDirectoror,ifthevotesofthedisinterestedDirectorsareinsufficienttoconstituteanactoftheBoardunderArticleIIhereof,byunanimousvoteofthedisinterestedDirectors;or(2)IfthematerialfactsastosuchDirector'sinterestinsuchcontractortransactionan'das'oanysuchcommonDirectorship,officershiporfinancialinterestare,disclosedingoodfaith,orknowntotheshareholdersentitledto,votethereon,and,such.contractortransactionis,approvedbyvoteofsuch,shareholders.,Iftherewasnosuch'disclosureorknowledge,orifthevoteofsuchinterestedDirectorwasnecessaryfortheapprovalofsuchcontractortransactionatameetingoftheBoardorcommitteeatwhichitwasapproved,theCompanymayavoidthecontractortransactionunlessthepartyorpartiestheretoshallestablishaffirmativelythatthecontractortransactionwasfairandreasonableastotheCompanyatthetimeitwas'appiovcdbytheBoard,a.committee.ortheshareholders..(kjSection7,3'orporateSealTheBoard.ofDirectorsmayadoptacorporateseal,altersuchsealatpleasure,andauthorizeittobeusedbycausingitora,facsimiletobeaffixedor,impressedorreproducedinanyothermanner.Section7.48'hetiNoticeorLapseofTimeUnnecessaryWheneverforanyreasontheCompanyortheBoardofDirectorsoranycommitteethereofisauthorizedttakeanyactionafternoticetoanypersonorpersonsorafterthelapseofaprescribedperiodoftime,suchactionmaybetaken,without,noticeandwithoutthe,lapseofsuchperiodoftimeifatanytimebeforeoraftersuchactionis,completedthepersonorpersonsentitledtopuchnoticeorentitledtoparticipate.intheactiontobetakenor,'inthecaseofashareholder,hisorherattorney-in-fact,submitasignedwaiverofnoticeofsuchrequirements.ARTICLE,VHIAMENDMENTSTOBY-LAWSSection8.1,ByDirectorsdBy-lawsmaybeadopted;amended,orrepealedornewBy-lawsmaybeadoptedbythevoteofamajorityof:theentireBoardofDirectors,atanyregular,or,specialmeetingoftheBoardatwhicha'quorumispresent;provided,however;thatanyadoptionof,amendmenttoorrepealofanynewBy-laworprovisioninconsistentwith.ArticleI(Section1.2-"Special.meetings",1.4-"PresidingatMeetings"or1.12-,"NoticeofShareholderBusinessandNominations"),ArticleII(Section2:1-,"Number;ofDirectors",2;2-"Elections,TermsandVacancies"or,2.9-"RemovalofDirectors,");ArticleVI-"Indemnification"orthisArticleVIH-"AmendmentstoBy-Laws"hereof,ifbyactionoftheBoard,shallbeonlyupontheapprovalofnotlessthantwo-thirdsoftheentireBoardatanysuchregularorspecialmeetingoftheBoardofDirectors.,Section8.2ByShareholdersBy-lawsmaybeadopted,amended,orrepealedbythevoteofamajorityoftheshareholdersentitled'voteintheelectionofanyDirectors(ashereinprovided)atanyannual.orspecialshareholders'eetingatwhic quorumispresent,ifnoticeofsuchproposedactionshallhavebeengiveninaccordancewiththenoticerequirementsofSection1.12oftheseBy-laws;provided,however,thatanyadoptionof,amendmenttoorrepealofanynewBy-lawsorprovisioninconsistentwithArticleI(Section1.2-"Specialmeetings",1.4-"PresidingatMeetings"or1.12"NoticeofShareholderBusinessandNominations"),ArticleII(Section2.1-"NumberofDirectors",2.2-"Elections,TermsandVacancies"or2.9-"RemovalofDirectors"),ArticleVI-"Indemnification"orthisArticleVIII-"AmendmentstoBy-Laws"hereof,ifbyactionofshareholders,shallbeonlyupontheaffirmativevoteofnotlessthantwo-thirdsofthesharesentitledtovotethereonatsuchannualorspecialshareholders'eetingatwhichanysuchactionisproposed.L-25
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Latest revision as of 11:02, 6 January 2025

Forwards Original Notarized Copy of Lilco Request for NRC Approval of Indirect Transfer of Control Over Minority Interest in Nine Mile Point,Unit 2
ML18041A056
Person / Time
Site: Nine Mile Point Constellation icon.png
Issue date: 09/08/1997
From: Reveley W
HUNTON & WILLIAMS
To:
NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM)
Shared Package
ML17059B706 List:
References
NUDOCS 9709100162
Download: ML18041A056 (610)
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