-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GnmJ/J4GnEsZ+eabOAq/Zw45VuvIHecRo9ZSTLvu6yIt2NQidUG0zSEqLbViyKy3 OUMutiHEFe15liRNP19P6g== 0000898822-97-000028.txt : 19970109 0000898822-97-000028.hdr.sgml : 19970109 ACCESSION NUMBER: 0000898822-97-000028 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970108 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LONG ISLAND LIGHTING CO CENTRAL INDEX KEY: 0000060251 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 111019782 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-35975 FILM NUMBER: 97502848 BUSINESS ADDRESS: STREET 1: 175 E OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 BUSINESS PHONE: 5165455184 MAIL ADDRESS: STREET 1: 175 E. OLD COUNTRY RD CITY: HICKSVILLE STATE: NY ZIP: 11801 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: BROOKLYN UNION GAS CO CENTRAL INDEX KEY: 0000014525 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 110584613 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: ONE METROTEC CENTER CITY: BROOKLYN STATE: NY ZIP: 11201 BUSINESS PHONE: 7184032000 MAIL ADDRESS: STREET 1: ONE METROTEC CENTER CITY: BROOKLYN STATE: NY ZIP: 11201 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 LONG ISLAND LIGHTING COMPANY (Name of Issuer) COMMON STOCK, PAR VALUE $5 PER SHARE (Title of Class of Securities) 542671102 (CUSIP Number) VINCENT D. ENRIGHT, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER THE BROOKLYN UNION GAS COMPANY ONE METROTECH CENTER BROOKLYN, NY 11201-3850 (718) 403-2000 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copy to: SETH A. KAPLAN, ESQ. WACHTELL, LIPTON, ROSEN & KATZ 51 WEST 52ND STREET NEW YORK, NEW YORK 10019 (212) 403-1000 DECEMBER 29, 1996 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Sched- ule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d- 1(b)(3) or (4), check the following box / /. Page 1 of 11 Pages CUSIP NO. 542671102 Page 2 of 11 Pages SCHEDULE 13D 1. NAME OF REPORTING PERSON SS OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON The Brooklyn Union Gas Company 11-0584613 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / / (b) / / 3. SEC USE ONLY 4. SOURCE OF FUNDS WC 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / / 6. CITIZENSHIP OR PLACE OF ORGANIZATION New York NUMBER OF 7. SOLE VOTING POWER SHARES 0 BENEFICIALLY OWNED BY 8. SHARED VOTING POWER EACH 0 REPORTING PERSON 9. SOLE DISPOSITIVE POWER WITH 0 10. SHARED DISPOSITIVE POWER 0 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 23,981,964 shares of Common Stock. 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CER- TAIN SHARES / / 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 16.6%. Based upon 120,780,792 shares of Common Stock outstanding as of December 27, 1996, as represented by Issuer, calculated pursuant to Rule 13d-3(d)(1) and assuming, solely for pur- poses of such calculation, that the option to purchase such shares has been exercised. 14. TYPE OF REPORTING PERSON CO ITEM 1. SECURITY AND ISSUER. This Schedule 13D relates to the common stock, par value $5.00 per share ("LILCO Common Stock"), of Long Island Lighting Company, a New York corporation ("LILCO"). The principal executive offices of LILCO are located at 175 East Old Country Road, Hicksville, New York 11801. ITEM 2. IDENTITY AND BACKGROUND. This Schedule 13D is filed by The Brooklyn Union Gas Company, a New York corporation ("Brooklyn Union"). Brooklyn Union, with approximately 3,000 employees, distributes natural gas in the New York City boroughs of Brooklyn and Staten Island and in two-thirds of the borough of Queens. Brooklyn Union has energy- related investments in gas exploration, production and marketing in the United States and Canada, as well as energy services in the United States, including cogeneration products, pipeline transportation and gas storage. Brooklyn Union's principal executive offices are located at One MetroTech Center, Brooklyn, New York 11201-3850. Each executive officer and each director of Brooklyn Union is a citizen of the United States. The name, business address and present principal occupation of each executive officer and director are set forth in Annex I to this Schedule 13D which is incorporated herein by this reference. During the last five years, to the best of Brooklyn Union's knowledge, neither Brooklyn Union nor any of its executive officers or directors has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which Brooklyn Union or such person was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation with respect to such laws, and which judgment, decree or final order was not subsequently vacated. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. Pursuant to a stock option agreement, dated as of December 29, 1996, between Brooklyn Union and LILCO (the "LILCO Stock Option Agreement"), LILCO granted Brooklyn Union an irrevocable option (the "LILCO Option") to purchase from LILCO, under certain circumstances and subject to certain adjustments, up to 23,981,964 authorized and unissued shares of LILCO Common Stock, at a price per share of $19.725 (the "Purchase Price"), payable, at Brooklyn Union's option, (a) in cash or (b) subject to LILCO's having obtained the approvals of any governmental authority required for LILCO to acquire such shares of Brooklyn Union Common Stock (as defined below) from Brooklyn Union, in Page 3 of 11 Pages shares of common stock, par value $.33 1/3 per share, of Brooklyn Union (the "Brooklyn Union Common Stock"). As of the date hereof, the LILCO Option is not exercisable. The shares of LILCO Common Stock subject to the LILCO Option would equal 19.9% of the outstanding LILCO Common Stock before giving effect to the exercise of the LILCO Option and 16.6% of the outstanding LILCO Common Stock after giving effect to the exercise of the LILCO Option. Under certain circumstances, Brooklyn Union may require LILCO to, or LILCO may be permitted to, repurchase for cash the LILCO Option and any shares of LILCO Common Stock acquired pursuant to the exercise of the LILCO Op- tion. The LILCO Option was granted by LILCO as a condition of and in consideration for Brooklyn Union entering into the Agreement and Plan of Exchange, by and among NYECO CORP., a New York corporation ("NYECO" or, from and after the consummation of the Binding Share Exchanges (as defined below), the "Company"), Brooklyn Union and LILCO, dated as of December 29, 1996 (the "Exchange Agreement"), and the BUG Stock Option Agreement, by and between Brooklyn Union and LILCO, dated as of December 29, 1996 (the "Brooklyn Union Stock Option Agreement"), each as described below. The exercise of the LILCO Option for the full number of shares currently covered thereby would require aggregate funds of $473,044,240. It is anticipated that, should the LILCO Option become exercisable and should Brooklyn Union determine to exercise the LILCO Option for cash, Brooklyn Union would obtain the funds from working capital or by borrowing from parties whose identity is not yet known. A copy of the LILCO Stock Option Agreement is included as Exhibit 2.2 to this Schedule 13D and is incorporated herein by this reference. The foregoing description of the LILCO Stock Option Agreement is qualified in its entirety by reference to such exhibit. ITEM 4. PURPOSE OF TRANSACTION. In connection with the execution of the LILCO Stock Option Agreement, Brooklyn Union, LILCO and NYECO entered into the Exchange Agreement, pursuant to which, among other matters and subject to the terms and conditions set forth in the Exchange Agreement, each outstanding share of LILCO Common Stock will be exchanged for .803 (the "Ratio") of a newly issued share of Common Stock, par value $0.01 per share, of NYECO (the "NYECO Common Stock") and each outstanding share of Brooklyn Union Common Stock will be exchanged for one newly issued share of NYECO Common Stock (collectively, the "Binding Share Exchanges"). Also in connection with the execution of the LILCO Stock Option Agreement, Brooklyn Union and LILCO entered into the Brooklyn Union Stock Option Agreement, pursuant to which, Brooklyn Union granted LILCO an Page 4 of 11 Pages irrevocable option (the "Brooklyn Union Option") to purchase from Brooklyn Union, under certain circumstances and subject to certain adjustments, up to 9,948,682 authorized and unissued shares of Brooklyn Union Common Stock, at a price per share of $30.0375, payable, at LILCO's option, (a) in cash or (b) subject to Brooklyn Union's having obtained the approvals of any governmental authority required for Brooklyn Union to acquire such shares of LILCO Common Stock from LILCO, in shares of LILCO Common Stock. The LILCO Option was granted by LILCO as a condition of and in consideration for Brooklyn Union entering into the Exchange Agreement and the Brooklyn Union Stock Option Agreement. Consummation of the Binding Share Exchanges is subject to certain conditions, including among other things: (i) receipt of the approval of the Exchange Agreement by the holders of two- thirds of the outstanding shares of LILCO Common Stock and by two- thirds of the outstanding shares of Brooklyn Union Common Stock; (ii) registration of the shares of NYECO Common Stock to be issued in the Binding Share Exchanges under the Securities Act of 1933, as amended; (iii) approval for listing of the shares of NYECO Common Stock to be issued in the Binding Share Exchanges on the New York Stock Exchange (the "NYSE") upon official notice of issuance; (iv) receipt of required approvals by governmental authorities, which approvals shall have become final and shall not impose terms or conditions which, in the aggregate, would have, or insofar as reasonably can be foreseen, could have, a material adverse effect on the business, assets, financial condition or results of operations of the Company and its prospective subsidiaries taken as a whole or which would be materially inconsistent with the agreements of the parties contained in the Exchange Agreement; (v) receipt by each of Brooklyn Union and LILCO of a letter from their respective independent public accountants confirming that the transactions effected pursuant to the Exchange Agreement will qualify as a pooling of interests transaction under generally accepted accounting principles and applicable regulations promulgated by the Securities and Exchange Commission; and (vi) satisfaction of certain other conditions. Pursuant to the Exchange Agreement, upon consummation of the Binding Share Exchanges, (a) the number of directors comprising the full Board of Directors of the Company will be 15 persons, six of whom will be designated by Brooklyn Union, six of whom will be designated by LILCO and three of whom will be designated by a committee consisting of two current Brooklyn Union directors of and two current LILCO directors and (b) Dr. William J. Catacosinos will be the Chairman of the Board of Directors, Chairman of the Executive Committee and Chief Executive Officer of the Company, and Mr. Robert B. Catell will be President and Chief Operating Officer of the Company. Upon consummation of the Binding Share Exchanges, each of the LILCO Common Stock and the Brooklyn Union Common Stock will be delisted from the NYSE. Pursuant to the Exchange Agreement, at the first anniversary of the effective time of the Binding Share Exchanges, Dr. Catacosinos will cease to be the Chief Executive Officer, will continue to be Chairman of the Board and Chairman of the Executive Committee and will become a Page 5 of 11 Pages consultant of the Company, and Mr. Catell will succeed Dr. Catacosinos as Chief Executive Officer of the Company. A copy of the Exchange Agreement is included as Exhibit 2.1 to this Schedule 13D and is incorporated herein by this refer- ence. The foregoing description of the Exchange Agreement is qualified in its entirety by reference to such exhibit. A copy of the Brooklyn Union Stock Option Agreement is included as Exhibit 2.3 to this Schedule 13D and is incorporated herein by this reference. The foregoing description of the Brooklyn Union Stock Option Agreement is qualified in its entirety by reference to such exhibit. Brooklyn Union and LILCO contemplate that discussions will continue with the Long Island Power Authority ("LIPA") to arrive at an agreement, mutually acceptable to each of Brooklyn Union and LILCO, pursuant to which LIPA would acquire certain assets or securities of LILCO, the consideration for which would inure to the benefit of the Company. In such event, the Ratio will automatically be revised to, and become, .880. Brooklyn Union and LILCO will continue their respective current dividend policies until the closing of the Binding Share Exchanges. It is expected that the Company's dividend policy will be determined prior to closing. Except as set forth herein, Brooklyn Union does not have any current plans or proposals that relate to or would result in (i) the acquisition by any person of additional shares of LILCO Common Stock or the disposition of shares of LILCO Common Stock; (ii) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving LILCO or any of its subsidiaries; (iii) a sale or transfer of any material amount of assets of LILCO or any of its subsidiaries; (iv) any change in the present board of directors or management of LILCO, including any plans or proposals to change the number or term of directors or to fill any vacancies on the board; (v) any material change in the present capitalization or dividend policy of LILCO; (vi) any other material change in LILCO's business or corporate structure; (vii) any change in LILCO's Certificate of Incorporation or By-laws, or instruments corresponding thereto, or other actions that may impede the acquisition of control of LILCO by any person; (viii) causing a class of securities of LILCO to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (ix) a class of equity securities of LILCO becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended; or (x) any action similar to any of those enumerated above. Page 6 of 11 Pages ITEM 5. INTEREST IN SECURITIES OF ISSUER. Although the LILCO Option does not allow Brooklyn Union to purchase any shares of LILCO Common Stock pursuant thereto unless and until the conditions to exercise specified in the LILCO Stock Option Agreement occur, assuming for purposes of this Item 5 that such conditions are satisfied and Brooklyn Union is entitled to purchase shares of LILCO Common Stock pursuant to the LILCO Option, Brooklyn Union would currently be entitled to purchase 23,981,964 shares of LILCO Common Stock, or approximately 19.9% of the currently outstanding LILCO Common Stock before giving effect to the exercise of the LILCO Option and 16.6% of the currently outstanding LILCO Common Stock after giving effect to the exercise of the LILCO Option (based upon 120,780,792 shares of LILCO Common Stock outstanding as of December 27, 1996, as represented by LILCO in the Exchange Agreement). Brooklyn Union does not have the right to acquire any shares of LILCO Common Stock under the LILCO Option unless certain events specified in the LILCO Stock Option Agreement occur. Accordingly, Brooklyn Union does not have sole or shared voting or dispositive power with respect to any shares of LILCO Common Stock purchasable under the LILCO Option, and Brooklyn Union disclaims beneficial ownership of LILCO Common Stock subject to the LILCO Option until such events occur. Assuming for purposes of this Item 5 that events occurred that would enable Brooklyn Union to exercise the LILCO Option and Brooklyn Union exercised the LILCO Option, Brooklyn Union would have sole voting power and sole dispositive power with respect to the shares of LILCO Common Stock acquired pursuant to the LILCO Option. The foregoing description of certain terms of the LILCO Stock Option Agreement is qualified in its entirety by reference to the LILCO Stock Option Agreement which is filed as Exhibit 2.2 hereto and which is incorporated herein by this reference. To the best of Brooklyn Union's knowledge, no executive officer or director of Brooklyn Union beneficially owns any shares of LILCO Common Stock, nor (except for the issuance of the LILCO Option) have any transactions in LILCO Common Stock been effected during the past 60 days by Brooklyn Union or, to the best knowledge of Brooklyn Union, by any executive officer or director of Brooklyn Union. In addition, no other person is known by Brooklyn Union to have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities covered by this Schedule 13D. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. The following exhibits are filed as part of this Sched- ule 13D: Exhibit 2.1 -- Exchange Agreement, filed as Exhibit 2 to the Current Report on Form 8-K of Brooklyn Union Page 7 of 11 Pages dated December 29, 1996, is hereby incorporated by reference Exhibit 2.2 -- LILCO Stock Option Agreement Exhibit 2.3 -- Brooklyn Union Stock Option Agreement Page 8 of 11 Pages ANNEX I DIRECTORS AND EXECUTIVE OFFICERS Set forth below are the name and present principal oc- cupation of each director and executive officer of The Brooklyn Union Gas Company as of December 29, 1996. The business address of each such director and executive officer is c/o The Brooklyn Union Gas Company, One MetroTech Center, Brooklyn, New York 11201- 3850. NAME PRINCIPAL OCCUPATION DIRECTORS OF BROOKLYN UNION: Robert B. Catell Chairman and Chief Executive Officer, The Brooklyn Union Gas Company Kenneth I. Chenault Vice Chairman, American Express Company Andrea S. Christensen Partner, Kaye, Scholer, Fierman, Hays & Handler (law firm) Donald H. Elliott Counsel, Hollyer Brady Smith Troxell Barrett Rockett Hines & Mone LLP (law firm) Alan H. Fishman Managing Partner, Columbia Financial Partners, L.P. (private investment company) James L. Larocca Lawyer and Consultant Edward D. Miller Senior Vice Chairman, The Chase Manhattan Corporation and The Chase Manhattan Bank James Q. Riordan Retired Vice Chairman and Chief Financial Officer, Mobil Corp. Charles Uribe Chairman and Chief Executive Officer, AJ Contracting Company, Inc. Page 9 of 11 Pages EXECUTIVE OFFICERS OF BROOKLYN UNION (WHO ARE NOT DIRECTORS): Helmut W. Peter Vice Chairman Craig G. Matthews President and Chief Operating Officer Anthony J. DiBrita Senior Vice President Vincent D. Enright Senior Vice President and Chief Financial Officer William K. Feraudo Senior Vice President Wallace P. Parker, Jr. Senior Vice President Lenore F. Puleo Senior Vice President Maurice K. Shaw Senior Vice President and Corporate Affairs Officer Edward J. Sondey Senior Vice President Tina G. Barber Vice President and Chief Information Officer Richard M. Desmond Vice President, Comptroller and Chief Accounting Officer Robert H. Preusser Vice President and Chief Engineer Roger J. Walz Vice President and General Auditor Robert R. Wieczorek Vice President, Secretary and Treasurer Page 10 of 11 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. THE BROOKLYN UNION GAS COMPANY By: /s/ Robert R. Wieczorek ---------------------------------- Name: Robert R. Wieczorek Title: Vice President, Secretary & Treasurer Dated: January 8, 1997 Page 11 of 11 Pages EXHIBIT INDEX EXHIBIT DESCRIPTION 2.1 Agreement and Plan of Exchange, dated as of December 29, 1996, among NYECO Corp., The Brooklyn Union Gas Company and Long Island Lighting Company, filed as Exhibit 2.1 to the Current Report on Form 8-K of The Brooklyn Union Gas Company dated December 29, 1996, is incorporated herein by reference. 2.2 LILCO Stock Option Agreement, dated as of December 29, 1996, between The Brooklyn Union Gas Company and Long Island Lighting Company. 2.3 Brooklyn Union Stock Option Agreement, dated as of December 29, 1996, between The Brooklyn Union Gas Company and Long Island Lighting Company. EX-2 2 EXHIBIT 2.2 EXHIBIT 2.2 LILCO STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of December 29, 1996 by and among THE BROOKLYN UNION GAS COMPANY, a New York corpo- ration ("BUG"), and LONG ISLAND LIGHTING COMPANY, a New York corporation (the "COMPANY"). WHEREAS, concurrently with the execution and delivery of this Agreement, (i) BUG, the Company and NYECO Corp., a New York corporation ("NYECO"), are entering into an Agreement and Plan of Exchange, dated as of the date hereof (the "EXCHANGE AGREEMENT"), which provides, among other things, upon the terms and subject to the conditions thereof, for the exchange of out- standing shares of capital stock of each of BUG and the Company for newly issued shares of capital stock of NYECO (the "BINDING SHARE EXCHANGE"), and (ii) the Company and BUG are entering into a certain stock option agreement dated as of the date hereof whereby BUG grants to the Company an option with respect to certain shares of BUG's common stock on the terms and sub- ject to the conditions set forth therein (the "BUG STOCK OPTION AGREEMENT"); and WHEREAS, as a condition to BUG's willingness to enter into the Exchange Agreement, BUG has required that the Company agree, and the Company has so agreed, to grant to BUG an option with respect to certain shares of the Company's common stock, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, to induce BUG to enter into the Ex- change Agreement, and in consideration of the mutual covenants and agreements set forth herein and in the Exchange Agreement, the parties hereto agree as follows: 1. GRANT OF OPTION. The Company hereby grants BUG an irrevocable option (the "COMPANY OPTION") to purchase up to 23,981,964 shares, subject to adjustment as provided in Section 11 (such shares being referred to herein as the "COMPANY SHARES") of common stock, par value $5.00 per share, of the Company (the "COMPANY COMMON STOCK") (being 19.9% of the number of shares of Company Common Stock outstanding on the date hereof) in the manner set forth below at a price (the "EXERCISE PRICE") per Company Share of $19.725 (which is equal to the Fair Market Value (as defined below) of a Company Share on the date hereof) payable, at BUG's option, (a) in cash or (b) sub- ject to the Company's having obtained the approvals of any Gov- ernmental Authority required for the Company to acquire the BUG Shares (as defined below) from BUG, which approvals the Company shall use best efforts to obtain, in shares of common stock, par value $.33-1/3 per share, of BUG ("BUG SHARES") in either case in accordance with Section 4 hereof. Notwithstanding the foregoing, in no event shall the number of Company Shares for which the Company Option is exercisable exceed 19.9% of the number of issued and outstanding Shares of Company Common Stock. As used herein, the "FAIR MARKET VALUE" of any share shall be the average of the daily closing sales price for such share on the New York Stock Exchange (the "NYSE") during 10 NYSE trading days prior to the fifth NYSE trading day preceding the date such Fair Market Value is to be determined. Capital- ized terms used herein but not defined herein shall have the meanings set forth in the Exchange Agreement. 2. EXERCISE OF OPTION. The Company Option may be exercised by BUG, in whole or in part, at any time or from time to time after the Exchange Agreement becomes terminable by BUG under circumstances which could entitle BUG to termination fees under either Section 9.3(a) of the Exchange Agreement (provided that the events specified in Section 9.3(a)(ii)(x) of the Ex- change Agreement shall have occurred, although the events spec- ified in Section 9.3(a)(ii)(y) thereof need not have occurred) or Section 9.3(b) of the Exchange Agreement (regardless of whether the Exchange Agreement is actually terminated or whether there occurs a closing of any Business Combination in- volving a Target Party or a closing by which a Target Party becomes a subsidiary), any such event by which the Exchange Agreement becomes so terminable by BUG being referred to herein as a "TRIGGER EVENT." The Company shall notify BUG promptly in writing of the occurrence of any Trigger Event, it being under- stood that the giving of such notice by the Company shall not be a condition to the right of BUG to exercise the Company Op- tion. In the event BUG wishes to exercise the Company option, BUG shall deliver to the Company a written notice (an "EXERCISE NOTICE") specifying the total number of Company Shares it wishes to purchase. Each closing of a purchase of Company Shares (a "CLOSING") shall occur at a place, on a date and at a time designated by BUG in an Exercise Notice delivered at least two business days prior to the date of the Closing. The Com- pany Option shall terminate upon the earlier of: (i) the Ef- fective Time; (ii) the termination of the Exchange Agreement pursuant to Section 9.1 thereof (other than upon or during the continuance of a Trigger Event); or (iii) 180 days following any termination of the Exchange Agreement upon or during the continuance of a Trigger Event (or if, at the expiration of such 180 day period the Company Option cannot be exercised by reason of any applicable judgment, decree, order, law or regu- lation, 10 business days after such impediment to exercise shall have been removed or shall have become final and not sub- ject to appeal, but in no event under this clause (iii) later -2 than June 30, 1998). Notwithstanding the foregoing, the Com- pany Option may not be exercised if BUG is in material breach of any of its material representations or warranties, or in material breach of any of its covenants or agreements, con- tained in this Agreement or in the Exchange Agreement. Upon the giving by BUG to the Company of the Exercise Notice and the tender of the applicable aggregate Exercise Price, BUG shall be deemed to be the holder of record of the Company Shares issu- able upon such exercise, notwithstanding that the stock trans- fer books of the Company shall then be closed or that certifi- cates representing such Company Shares shall not then be actu- ally delivered to BUG. 3. CONDITIONS TO CLOSING. The obligation of the Company to issue the Company Shares to BUG hereunder is subject to the conditions, which (other than the conditions described in clauses (i), (iii) and (iv) below) may be waived by the Com- pany in its sole discretion, that (i) all waiting periods, if any, under the HSR Act, applicable to the issuance of the Com- pany Shares hereunder shall have expired or have been termi- nated; (ii) the Company Shares, and any BUG Shares which are issued in payment of the Exercise Price, shall have been ap- proved for listing on the NYSE upon official notice of issu- ance; (iii) all consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any fed- eral, state or local administrative agency or commission or other federal, state or local Governmental Authority, if any, required in connection with the issuance of the Company Shares hereunder shall have been obtained or made, as the case may be, including, without limitation, if applicable, the approval of the SEC under Section 10 of the 1935 Act of the acquisition of the Company Shares by BUG and, if applicable, the acquisition by the Company of the BUG Shares constituting the Exercise Price hereunder; and (iv) no preliminary or permanent injunc- tion or other order by any court of competent jurisdiction pro- hibiting or otherwise restraining such issuance shall be in effect. 4. CLOSING. At any Closing, (a) the Company will deliver to BUG or its designee a single certificate in defini- tive form representing the number of the Company Shares desig- nated by BUG in its Exercise Notice, such certificate to be registered in the name of BUG and to bear the legend set forth in Section 12, and (b) BUG will deliver to the Company the ag- gregate price for the Company Shares so designated and being purchased by (i) wire transfer of immediately available funds or certified check or bank check or (ii) subject to the condi- tion in Section 1(b), a certificate or certificates represent- ing the number of BUG Shares being issued by BUG in consider- ation thereof, as the case may be. For the purposes of this -3 Agreement, the number of BUG Shares to be delivered to the Com- pany shall be equal to the quotient obtained by dividing (i) the product of (x) the number of Company Shares with respect to which the Company Option is being exercised and (y) the Exer- cise Price by (ii) the Fair Market Value of the BUG Shares on the date immediately preceding the date the Exercise Notice is delivered to the Company. The Company shall pay all expenses, and any and all United States federal, state and local taxes and other charges that may be payable in connection with the preparation, issue and delivery of stock certificates under this Section 4 in the name of BUG or its designee. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to BUG that (a) except as set forth in Section 5.1 of the LILCO Disclosure Schedule, the Company is a corporation duly organized, validly existing and in active status under the laws of the State of New York and has the corporate power and authority to enter into this Agree- ment and, subject to obtaining the applicable approval of shareholders of the Company for the repurchase of Company Shares pursuant to Section 7(a) below under circumstances where Section 513(e) of the NYBCL would be applicable (the "BUYBACK APPROVALS") and subject to any regulatory approvals referred to herein and to the provisions of Section 513(a) of the NYBCL, if applicable, to carry out its obligations hereunder, (b) the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate pro- ceedings on the part of the Company are necessary to authorize this Agreement or any of the transactions contemplated hereby (other than any required Buyback Approvals), (c) such corporate action (including the approval of the Board of Directors of the Company) is intended to render inapplicable to this Agreement and the Exchange Agreement and the transactions contemplated hereby and thereby, the provisions of the NYBCL referred to in Section 5.15 of the Exchange Agreement, (d) this Agreement has been duly executed and delivered by the Company, constitutes a valid and binding obligation of the Company and, assuming this Agreement constitutes a valid and binding obligation of BUG, is enforceable against the Company in accordance with its terms, (e) the Company has taken all necessary corporate action to authorize and reserve for issuance and to permit it to issue, upon exercise of the Company Option, and at all times from the date hereof through the expiration of the Company Option will have reserved, 23,981,964 authorized and unissued Company Shares, such amount being subject to adjustment as provided in Section 11, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, (f) upon delivery of the -4 Company Shares to BUG upon the exercise of the Company Option, BUG will acquire the Company Shares free and clear of all claims, liens, charges, encumbrances and security interests of any nature whatsoever, (g) except as described in Section 5.4(b) of the Exchange Agreement, the execution and delivery of this Agreement by the Company does not, and the consummation by the Company of the transactions contemplated hereby will not, violate, conflict with, or result in a breach of any provision of, or constitute a default (with or without notice or lapse of time, or both) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination, cancellation, or acceleration of any obligation or the loss of a material benefit under, or the creation of a lien, pledge, security interest or other encumbrance on assets (any such conflict, violation, default, right of termination, cancellation or acceleration, loss or creation, a "VIOLATION") of the Company or any of its subsidiaries, pursuant to, (A) any provision of the certificate of incorporation or by-laws of the Company, (B) any provisions of any loan or credit agreement, note, mortgage, indenture, lease, Company benefit plan or other agreement, obligation, instrument, permit, concession, fran- chise, license or (C) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets, which Violation, in the case of each of clauses (B) and (C), could reasonably be expected to have a material adverse effect on the Company and its subsidiaries taken as a whole, (h) except as described in Section 5.4(c) of the Exchange Agreement or Section 1(b) or Section 3 hereof, the execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, (i) none of the Company, any of its affiliates or anyone acting on its or their behalf has issued, sold or offered any security of the Company to any person under circumstances that would cause the issuance and sale of the Company Shares, as contem- plated by this Agreement, to be subject to the registration requirements of the Securities Act as in effect on the date hereof and, assuming the representations of BUG contained in Section 6(h) are true and correct, the issuance, sale and de- livery of the Company Shares hereunder would be exempt from the registration and prospectus delivery requirements of the Secu- rities Act, as in effect on the date hereof (and the Company shall not any action which would cause the issuance, sale and delivery of the Company Shares hereunder not to be exempt from such requirements), and (j) any BUG Shares acquired pursuant to this Agreement will be acquired for the Company's own account, for investment purposes only and will not be acquired by the Company with a view to the public distribution thereof in violation of any applicable provision of the Securities Act. -5 6. REPRESENTATIONS AND WARRANTIES OF BUG. BUG rep- resents and warrants to the Company that (a) BUG is a corpora- tion duly organized, validly existing and in good standing un- der the laws of the State of New York and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder, (b) the execution and delivery of this Agreement by BUG and the consummation by BUG of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of BUG and no other corporate proceedings on the part of BUG are necessary to au- thorize this Agreement or any of the transactions contemplated hereby, (c) this Agreement has been duly executed and delivered by BUG and constitutes a valid and binding obligation of BUG, and, assuming this Agreement constitutes a valid and binding obligation of the Company, is enforceable against BUG in accordance with its terms, (d) prior to any delivery of BUG Shares in consideration of the purchase of Company Shares pursuant hereto, BUG will have taken all necessary corporate action to authorize for issuance and to permit it to issue such BUG Shares, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable, and to render inapplicable to the receipt by the Company of the BUG Shares the provisions of the NYBCL referred to in Section 4.15 of the Exchange Agreement, (e) upon any de- livery of such BUG Shares to the Company in consideration of the purchase of Company Shares pursuant hereto, the Company will acquire the BUG Shares free and clear of all claims, liens, charges, encumbrances and security interests of any na- ture whatsoever, (f) except as described in Section 4.4(b) of the Exchange Agreement, the execution and delivery of this Agreement by BUG does not, and the consummation by BUG of the transactions contemplated hereby will not, violate, conflict with, or result in the breach of any provision of, or consti- tute a default (with or without notice or lapse of time, or both) under, or result in any Violation by BUG or any of its subsidiaries, pursuant to (A) any provision of the certificate of incorporation or by-laws of BUG, (B) any provisions of any loan or credit agreement, note, mortgage, indenture, lease, BUG benefit plan or other agreement, obligation, instrument, permit concession, franchise, license or (C) any judgment, order, de- cree, statute, law, ordinance, rule or regulation applicable to BUG or its properties or assets, which Violation, in the case of each of its clauses (B) and/or (C), would have a material adverse effect on BUG and its subsidiaries taken as a whole, (g) except as described in Section 4.4(c) of the Exchange Agreement or Section 1(b) or Section 3 hereof, the execution and delivery of this Agreement by BUG does not, and the consum- mation by BUG of the transactions contemplated hereby will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority and (h) any Company Shares acquired upon exercise of the Company -6 Option will be acquired for BUG's own account, for investment purposes only and will not be, and the Company Option is not being, acquired by BUG with a view to the public distribution thereof in violation of any applicable provision of the Securi- ties Act. 7. CERTAIN REPURCHASES. (a) BUG PUT. At the request of BUG by written no- tice at any time during which the Company Option is exercisable pursuant to Section 2 (the "REPURCHASE PERIOD"), the Company (or any successor entity thereof) shall repurchase from BUG all or any portion of the Company Option, at the price set forth in subparagraph (i) below, or, at the request of BUG by written notice at any time prior to December 31, 1997 (provided that such date shall be extended to June 30, 1998 under the circum- stances where the date after which either party may terminate the Exchange Agreement pursuant to Section 9.1(b) of the Ex- change Agreement has been extended to June 30, 1998), the Com- pany (or any successor entity thereof) shall repurchase from BUG all or any portion of the Company Shares purchased by BUG pursuant to the Company Option, at the price set forth in sub- paragraph (ii) below: (i) the difference between the "MARKET/OFFER PRICE" for shares of Company Common Stock as of the date BUG gives notice of its intent to exercise its rights under this Section 7 (defined as the higher of (A) the price per share offered as of such date pur- suant to any tender or exchange offer or other offer with respect to a Business Combination which was made prior to such date and not terminated or withdrawn as of such date (the "OFFER PRICE") and (B) the Fair Market Value of Company Common Stock as of such date (the "MARKET PRICE")) and the Exercise Price, multiplied by the number of Company Shares purchas- able pursuant to the Company Option (or portion thereof with respect to which BUG is exercising its rights under this Section 7), but only if the Market/ Offer Price is greater than the Exercise Price; (ii) the product of (x) the sum of (A) the Exer- cise Price paid by BUG per Company Share acquired pursuant to the Company Option and (B) the difference between the Market/Offer Price and the Exercise Price, but only if the Market/Offer Price is greater than the Exercise Price, and (y) the number of Com- pany Shares to be repurchased pursuant to this Sec- tion 7. For purposes of this clause (ii), the Offer Price shall be the highest price per share offered -7 pursuant to a tender or exchange offer or other Busi- ness Combination offer during the Repurchase Period prior to the delivery by BUG of a notice of repur- chase. (b) REDELIVERY OF BUG SHARES. If BUG elected to purchase Company Shares pursuant to the exercise of the Company Option by the issuance and delivery of BUG Shares, then the Company shall, if so requested by BUG, in fulfillment of its obligation pursuant to clause (a) of Section 7(a)(ii)(x) (that is, with respect to the Exercise Price only and without limita- tion to its obligation to pay additional consideration under clause (b) of Section 7(a)(ii)(x)), redeliver the certificate for such BUG Shares to BUG, free and clear of all liens, claims, damages, charges and encumbrances of any kind or nature whatsoever; provided, however, that if less than all of the Company Shares purchased by BUG pursuant to the Company Option are to be repurchased pursuant to this Section 7, then BUG shall issue to the Company a new certificate representing those BUG Shares which are not to be redelivered to BUG pursuant to this Section 7 as they constituted payment of the Exercise Price for the Company Shares not being repurchased. (c) PAYMENT AND REDELIVERY OF COMPANY OPTION OR SHARES. In the event BUG exercises its rights under this Sec- tion 7, the Company shall, within 10 business days thereafter, pay the required amount to BUG in immediately available funds and BUG shall surrender to the Company the Company Option or the certificates evidencing the Company Shares purchased by BUG pursuant thereto, and BUG shall warrant that it owns the Com- pany Option or such shares and that the Company Option or such shares are then free and clear of all liens, claims, damages, charges and encumbrances of any kind or nature whatsoever. (d) BUG CALL. If BUG has elected to purchase Com- pany Shares pursuant to the exercise of the Company Option by the issuance and delivery of BUG Shares, notwithstanding that BUG may no longer hold any such Company Shares or that BUG elects not to exercise its other rights under this Section 7, BUG may require, at any time or from time to time prior to De- cember 31, 1997 (provided that such date shall be extended to June 30, 1998 under the circumstances where the date after which either party may terminate the Exchange Agreement pursu- ant to Section 9.1(b) of the Exchange Agreement has been ex- tended to June 30, 1998), the Company to sell to BUG any such BUG Shares at the Fair Market Value that had been attributed to such BUG Shares pursuant to Section 4 plus interest at the rate of 6.5% per annum on such amount from the Closing Date relating to the exchange of such BUG Shares pursuant to Section 4 to the closing date under this Section 7(d) less any dividends on such -8 BUG Shares paid during such period or declared and payable to stockholders of record on a date during such period. (e) REPURCHASE PRICE REDUCED AT BUG'S OPTION. In the event the repurchase price specified in Section 7(a) would subject the purchase of the Company Option or the Company Shares purchased by BUG pursuant to the Company Option to a vote of the shareholders of the Company pursuant to Section 513(e) of the NYBCL, then BUG may, at its election, reduce the repurchase price to an amount which would permit such repur- chase without the necessity for such a shareholder vote. 8. RESTRICTIONS ON TRANSFER. (a) RESTRICTIONS ON TRANSFER. Prior to the Expira- tion Date, neither party shall, directly or indirectly, by op- eration of law or otherwise, sell, assign, pledge, or otherwise dispose of or transfer any Restricted Shares beneficially owned by such party, other than (i) pursuant to Section 7, or (ii) in accordance with Section 9(b) or Section 10. (b) PERMITTED SALES. Following the termination of the Exchange Agreement, a party shall be permitted to sell any Restricted Shares beneficially owned by it if such sale is made pursuant to a tender or exchange offer that has been approved or recommended, or otherwise determined to be fair to and in the best interests of the shareholders of the other party, by a majority of the members of the Board of Directors of such other party which majority shall include a majority of directors who were directors prior to the announcement of such tender or ex- change offer. 9. REGISTRATION RIGHTS. Following the termination of the Exchange Agreement, each party hereto (a "DESIGNATED HOLDER") may by written notice (the "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request the Registrant to register under the Securities Act all or any part of the Re- stricted Shares beneficially owned by such Designated Holder (the "REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment underwritten public offering in which the Designated Holder and the underwriters shall effect as wide a distribution of such Registrable Securities as is reasonably practicable and shall use their best efforts to prevent any person (including any Group (as used in Rule 13d-5 under the Exchange Act)) and its affiliates from purchasing through such offering Restricted Shares representing more than 1% of the outstanding shares of common stock of the Registrant on a fully diluted basis (a "PERMITTED OFFERING"). The Registration Notice shall include a certificate executed by the Designated Holder and its proposed managing underwriter, which underwriter shall be an investment -9 banking firm of nationally recognized standing (the "MANAGER"), stating that (i) they have a good faith intention to commence promptly a Permitted Offering and (ii) the Manager in good faith believes that, based on the then prevailing market condi- tions, it will be able to sell the Registrable Securities at a per share price equal to at least 80% of the then Fair Market Value of such shares. The Registrant (and/or any person desig- nated by the Registrant) shall thereupon have the option exer- cisable by written notice delivered to the Designated Holder within 10 business days after the receipt of the Registration Notice, irrevocably to agree to purchase all or any part of the Registrable Securities proposed to be so sold for cash at a price (the "OPTION PRICE") equal to the product of (i) the num- ber of Registrable Securities to be so purchased by the Regis- trant and (ii) the then Fair Market Value of such shares. Any such purchase of Registrable Securities by the Registrant (or its designee) hereunder shall take place at a closing to be held at the principal executive offices of the Registrant or at the offices of its counsel at any reasonable date and time des- ignated by the Registrant and/or such designee in such notice within 20 business days after delivery of such notice. Any payment for the shares to be purchased shall be made by deliv- ery at the time of such closing of the Option Price in immedi- ately available funds. If the Registrant does not elect to exercise its op- tion pursuant to this Section 10 with respect to all Regis- trable Securities, it shall use its best efforts to effect, as promptly as practicable, the registration under the Securities Act of the unpurchased Registrable Securities proposed to be so sold; provided, however, that (i) neither party shall be en- titled to more than an aggregate of two effective registration statements hereunder and (ii) the Registrant will not be re- quired to file any such registration statement during any pe- riod of time (not to exceed 40 days after such request in the case of clause (A) below or 90 days in the case of clauses (B) and (C) below) when (A) the Registrant is in possession of ma- terial non-public information which it reasonably believes would be detrimental to be disclosed at such time and, in the opinion of counsel to the Registrant, such information would have to be disclosed if a registration statement were filed at that time: (B) the Registrant is required under the Securities Act to include audited financial statements for any period in such registration statement and such financial statements are not yet available for inclusion in such registration statement; or (C) the Registrant determines, in its reasonable judgment, that such registration would interfere with any financing, ac- quisition or other material transaction involving the Regis- trant or any of its affiliates. The Registrant shall use its reasonable best efforts to cause any Registrable Securities -10 registered pursuant to this Section 10 to be qualified for sale under the securities or Blue-Sky laws of such jurisdictions as the Designated Holder may reasonably request and shall continue such registration or qualification in effect in such jurisdic- tion; provided, however, that the Registrant shall not be re- quired to qualify to do business in, or consent to general ser- vice of process in, any jurisdiction by reason of this provi- sion. The registration rights set forth in this Section 10 are subject to the condition that the Designated Holder shall provide the Registrant with such information with respect to such holder's Registrable Securities, the plans for the distri- bution thereof, and such other information with respect to such holder as, in the reasonable judgment of counsel for the Regis- trant, is necessary to enable the Registrant to include in such registration statement all material facts required to be dis- closed with respect to a registration thereunder. A registration effected under this Section 10 shall be effected at the Registrant's expense, except for underwrit- ing discounts and commissions and the fees and the expenses of counsel to the Designated Holder, and the Registrant shall pro- vide to the underwriters such documentation (including certifi- cates, opinions of counsel and "comfort" letters from auditors as are customary in connection with underwritten public offer- ings as such underwriters may reasonably require. In connec- tion with any such registration, the parties agree (i) to indemnify each other and the underwriters in the customary man- ner, (ii) to enter into an underwriting agreement in form and substance customary for transactions of such type with the Man- ager and the other underwriters participating in such offering and (iii) to take all further actions which shall be reasonably necessary to effect such registration and sale (including, if the Manager deems it necessary, participating in road-show pre- sentations). The Registrant shall be entitled to include (at its expense) additional shares of its common stock in a registra- tion effected pursuant to this Section 10 only if and to the extent the Manager determines that such inclusion will not ad- versely affect the prospects of success of such offering. 10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any restriction on the Company contained in this Agreement or in the Exchange Agreement, in the event of any change in Company Common Stock by reason of stock divi- dends, splitups, mergers (other than the Binding Share Ex- changes), recapitalizations, combinations, exchange of shares -11 or the like, the type and number of shares or securities sub- ject to the Company Option, and the purchase price per share provided in Section 1, shall be adjusted approximately to restore to BUG its rights hereunder, including the right to purchase from the Company (or its successors) shares of Company Common Stock representing 19.9% of the Outstanding Company Common Stock for the aggregate Exercise Price calculated as of the date of this Agreement as provided in Section 1. 11. RESTRICTIVE LEGENDS. Each certificate repre- senting shares of Company Common Stock issued to BUG hereunder, and BUG Shares, if any, delivered to the Company at a Closing, shall include a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, ANY MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH SE- CURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANS- FER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF DECEMBER 29, 1996, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON REQUEST. It is understood and agreed that: (i) the reference to the re- sale restrictions of the Securities Act in the above legend shall be removed by delivery of substitute certificate(s) with- out such reference if BUG or the Company, as the case may be, shall have delivered to the other party a copy of a letter from the staff of the Securities and Exchange Commission, or an opinion of counsel, in form and substance satisfactory to the other party, to the effect that such legend is not required for purposes of the Securities Act; (ii) the reference to the pro- visions to this Agreement in the above legend shall be removed by delivery of substitute certificate(s) without such reference if the shares have been sold or transferred in compliance with the provisions of this Agreement and under circumstances that do not require the retention of such reference; and (iii) the legend shall be removed in its entirety if the conditions in the preceding clauses (i) and (ii) are both satisfied. In ad- dition, such certificates shall bear any other legend as may be required by law. Certificates representing shares sold in a registered public offering pursuant to Section 10 shall not be required to bear the legend set forth in Section 12. 12. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective suc- cessors and permitted assigns. Except as expressly provided for in this Agreement, neither this Agreement nor the rights or the obligations of either party hereto are assignable, except -12 by operation of law, or with the written consent of the other party. Nothing contained in this Agreement, express or im- plied, is intended to confer upon any person other than the parties hereto and their respective permitted assigns any rights or remedies of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold by a party in compliance with the provisions of Section 10 shall, upon consummation of such sale, be free of the restrictions imposed with respect to such shares by this Agreement, unless and until such party shall repurchase or otherwise become the beneficial owner of such shares, and any transferee of such shares shall not be en- titled to the registration rights of such party. 13. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be adequate remedy. Accordingly, each party agrees that, in addi- tion to other remedies, the other party shall be entitled to an injunction restraining any violation or threatened violation of the provisions of this Agreement. In the event that any action should be brought in equity to enforce the provisions of the Agreement, neither party will allege, and each party hereby waives the defense, that there is adequate remedy at law. 14. ENTIRE AGREEMENT. This Agreement, the BUG Stock Option Agreement, the Confidentiality Agreement and the Ex- change Agreement (including the exhibits and schedules thereto) constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the sub- ject matter hereof and thereof. 15. FURTHER ASSURANCES. Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. 16. VALIDITY. The invalidity of unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. In the event any court or other competent authority holds any provisions of this Agreement to be null, void or unenforceable, the parties hereto shall negotiate in good faith the execution and delivery of an amendment to this Agreement in order, as nearly as possible, to effectuate, to the extent permitted by law, the intent of the parties hereto with respect to such provision and the economic -13 effects thereof. If for any reason any such court or regula- tory agency determines that BUG is not permitted to acquire, or the Company is not permitted to repurchase pursuant to Section 7, the full number of shares of Company Common Stock provided in Section 1 hereof (as the same may be adjusted), it is the express intention of the Company to allow BUG to acquire or to require the Company to repurchase such lesser number of shares as may be permissible, without any amendment or modification hereof. Each party agrees that, should any court or other com- petent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith, or not take any action required herein, the other party shall not be entitled to spe- cific performance of such provision or part hereof or to any other remedy, including but not limited to money damages, for breach hereof or of any other provision of this Agreement or part hereof as the result of such holding or order. 17. NOTICES. All notices and other communication hereunder shall be in writing and shall be deemed given if (i) delivered personally, or (ii) sent by reputable overnight cou- rier service, or (iii) telecopied (which is confirmed), or (iv) five days after being mailed by registered or certified mail (return receipt requested) to the parties at the following ad- dresses (or at such other address for a party as shall be spec- ified by like notice): A. If to BUG, to: The Brooklyn Union Gas Company One Metrotech Center Brooklyn, New York 11201-3850 Attention: Chief Executive Officer with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Seth A. Kaplan B. If to the Company, to: Long Island Lighting Company 175 East Old County Road Hicksville, New York 11801 Attention: Chief Executive Officer with a copy to: -14 Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 Attention: Thomas E. Constance 18. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such State and without regard to its choice of law principles. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any federal court located in the State of New York or any New York state court in the event any dispute arises out of this Agree- ment or any of the transactions contemplated by this agreement, (b) agrees that it will not attempt to deny or defeat such per- sonal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contem- plated by this Agreement in any court other than a federal court sitting in the State of New York or a New York state court. 19. INTERPRETATION. When a reference is made in this Agreement to a Section such reference shall be to a Sec- tion of this Agreement unless otherwise indicated. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The descriptive headings herein are in- serted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 20. COUNTERPARTS. This Agreement may be executed in two counterparts, each of which shall be deemed to be an origi- nal, but both of which, taken together, shall constitute one and the same instrument. 21. EXPENSES. Except as otherwise expressly pro- vided herein or in the Exchange Agreement, all costs and ex- penses incurred in connection with the transactions contem- plated by this Agreement shall be paid by the party incurring such expenses. 22. AMENDMENTS; WAIVER. This Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. -15 23. EXTENSION OF TIME PERIODS. The time periods for exercise of certain rights under Sections 2, 6 and 7 shall be extended: (i) to the extent necessary to obtain all regulatory approvals for the exercise of such rights, and for the expira- tion of all statutory waiting periods; and (ii) to the extent necessary to avoid any liability under Section 16(b) of the Exchange Act by reason of such exercise. 24. REPLACEMENT OF COMPANY OPTION. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Agreement, and (in the case of loss, theft or destruction) of reasonably sat- isfactory indemnification, and upon surrender and cancellation of this Agreement, if mutilated, the Company will execute and deliver a new Agreement of like tenor and date. -16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly autho- rized officers as of the date first above written. THE BROOKLYN UNION GAS COMPANY By: /s/ Robert B. Catell ---------------------------------- Name: Robert B. Catell Title: Chief Executive Officer LONG ISLAND LIGHTING COMPANY By: /s/ Dr. William J. Catacosinos ---------------------------------- Name: Dr. William J. Catacosinos Title: Chief Executive Officer -17 EX-2 3 EXHIBIT 2.3 EXHIBIT 2.3 BUG STOCK OPTION AGREEMENT STOCK OPTION AGREEMENT, dated as of December 29, 1996 by and among LONG ISLAND LIGHTING COMPANY, a New York corpora- tion ("LILCO"), and THE BROOKLYN UNION GAS COMPANY, a New York corporation (the "COMPANY"). WHEREAS, concurrently with the execution and delivery of this Agreement, (i) LILCO, the Company and NYECO Corp., a New York corporation ("NYECO"), are entering into an Agreement and Plan of Exchange, dated as of the date hereof (the "EX- CHANGE AGREEMENT"), which provides, among other things, upon the terms and subject to the conditions thereof, for the ex- change of outstanding shares of capital stock of each of LILCO and the Company for newly issued shares of capital stock of NYECO (the "BINDING SHARE EXCHANGE"), and (ii) the Company and LILCO are entering into a certain stock option agreement dated as of the date hereof whereby LILCO grants to the Company an option with respect to certain shares of LILCO's common stock on the terms and subject to the conditions set forth therein (the "LILCO STOCK OPTION AGREEMENT"); and WHEREAS, as a condition to LILCO's willingness to enter into the Exchange Agreement, LILCO has requested that the Company agree, and the Company has so agreed, to grant to LILCO an option with respect to certain shares of the Company's com- mon stock, on the terms and subject to the conditions set forth herein. NOW, THEREFORE, to induce LILCO to enter into the Exchange Agreement, and in consideration of the mutual cov- enants and agreements set forth herein and in the Exchange Agreement, the parties hereto agree as follows: 1. GRANT OF OPTION. The Company hereby grants LILCO an irrevocable option (the "COMPANY OPTION") to purchase up to 9,948,682 shares, subject to adjustment as provided in Section 11 (such shares being referred to herein as the "COMPANY SHARES") of common stock, par value $.33-1/3 per share, of the Company (the "COMPANY COMMON STOCK") (being 19.9% of the number of shares of Company Common Stock outstanding on the date hereof) in the manner set forth below at a price (the "EXERCISE PRICE") per Company Share of $30.0375 (which is equal to the Fair Market Value (as defined below) of a Company Share on the date hereof) payable, at LILCO's option, (a) in cash or (b) subject to the Company's having obtained the approvals of any Governmental Authority required for the Company to acquire the LILCO Shares (as defined below) from LILCO, which approvals the Company shall use best efforts to obtain, in shares of common stock, par value $5.00 per share, of LILCO ("LILCO SHARES") in either case in accordance with Section 4 hereof. Notwithstand- ing the foregoing, in no event shall the number of Company Shares for which the Company Option is exercisable exceed 19.9% of the number of issued and outstanding shares of Company Com- mon Stock. As used herein, the "FAIR MARKET VALUE" of any share shall be the average of the daily closing sales price for such share on the New York Stock Exchange (the "NYSE") during the 10 NYSE trading days prior to the fifth NYSE trading day preceding the date such Fair Market Value is to be determined. Capitalized terms used herein but not defined herein shall have the meanings set forth in the Exchange Agreement. 2. EXERCISE OF OPTION. The Company Option may be exercised by LILCO, in whole or in part, at any time or from time to time after the Exchange Agreement becomes terminable by LILCO under circumstances which could entitle LILCO to termina- tion fees under either Section 9.3(a) of the Exchange Agreement (provided that the events specified in Section 9.3(a)(ii)(x) of the Exchange Agreement shall have occurred, although the events specified in Section 9.3(a)(ii)(y) thereof need not have oc- curred) or Section 9.3(b) of the Exchange Agreement (regardless of whether the Exchange Agreement is actually terminated or whether there occurs a closing of any Business Combination in- volving a Target Party or a closing by which a Target Party becomes a subsidiary), any such event by which the Exchange Agreement becomes so terminable by LILCO being referred to herein as a "TRIGGER EVENT." The Company shall notify LILCO promptly in writing of the occurrence of any Trigger Event, it being understood that the giving of such notice by the Company shall not be a condition to the right of LILCO to exercise the Company Option. In the event LILCO wishes to exercise the Com- pany Option, LILCO shall deliver to the Company a written no- tice (an "EXERCISE NOTICE") specifying the total number of Com- pany Shares it wishes to purchase. Each closing of a purchase of Company Shares (a "CLOSING") shall occur at a place, on a date and at a time designated by LILCO in an Exercise Notice delivered at least two business days prior to the date of the Closing. The Company Option shall terminate upon the earlier of: (i) the Effective Time; (ii) the termination of the Ex- change Agreement pursuant to Section 9.1 thereof (other than upon or during the continuance of a Trigger Event); or (iii) 180 days following any termination of the Exchange Agreement upon or during the continuance of a Trigger Event (or if, at the expiration of such 180 day period the Company Option cannot be exercised by reason of any applicable judgment, decree, or- der, law or regulation, 10 business days after such impediment to exercise shall have been removed or shall have become final and not subject to appeal, but in no event under this clause -2 (iii) later than June 30, 1998). Notwithstanding the forego- ing, the Company Option may not be exercised if LILCO is in material breach of any of its material representations or war- ranties, or in material breach of any of its covenants or agreements, contained in this Agreement or in the Exchange Agreement. Upon the giving by LILCO to the Company of the Ex- ercise Notice and the tender of the applicable aggregate Exer- cise Price, LILCO shall be deemed to be the holder of record of the Company Shares issuable upon such exercise, notwithstanding that the stock transfer books of the Company shall then be closed or that certificates representing such Company Shares shall not then be actually delivered to LILCO. 3. CONDITIONS TO CLOSING. The obligation of the Company to issue the Company Shares to LILCO hereunder is sub- ject to the conditions, which (other than the conditions de- scribed in clauses (i), (iii) and (iv) below) may be waived by the Company in its sole discretion, that (i) all waiting peri- ods, if any, under the HSR Act, applicable to the issuance of the Company Shares hereunder shall have expired or have been terminated; (ii) the Company Shares, and any LILCO Shares which are issued in payment of the Exercise Price, shall have been approved for listing on the NYSE upon official notice of issu- ance; (iii) all consents, approvals, orders or authorizations of, or registrations, declarations or filings with, any fed- eral, state or local administrative agency or commission or other federal, state or local Governmental Authority, if any, required in connection with the issuance of the Company Shares hereunder shall have been obtained or made, as the case may be, including, without limitation, if applicable, the approval of the SEC under Section 10 of the 1935 Act of the acquisition of the Company Shares by LILCO and, if applicable, the acquisition by the Company of the LILCO Shares constituting the Exercise Price hereunder; and (iv) no preliminary or permanent injunc- tion or other order by any court of competent jurisdiction pro- hibiting or otherwise restraining such issuance shall be in effect. 4. CLOSING. At any Closing, (a) the Company will deliver to LILCO or its designee a single certificate in de- finitive form representing the number of the Company Shares designated by LILCO in its Exercise Notice, such certificate to be registered in the name of LILCO and to bear the legend set forth in Section 12, and (b) LILCO will deliver to the Company the aggregate price for the Company Shares so designated and being purchased by (i) wire transfer of immediately available funds or certified check or bank check or (ii) subject to the condition in Section 1(b), a certificate or certificates repre- senting the number of LILCO Shares being issued by LILCO in consideration thereof, as the case may be. For the purposes of -3 this Agreement, the number of LILCO Shares to be delivered to the Company shall be equal to the quotient obtained by dividing (i) the product of (x) the number of Company Shares with re- spect to which the Company Option is being exercised and (y) the Exercise Price by (ii) the Fair Market Value of the LILCO Shares on the date immediately preceding the date the Exercise Notice is delivered to the Company. The Company shall pay all expenses, and any and all United States federal, state and lo- cal taxes and other charges that may be payable in connection with the preparation, issue and delivery of stock certificates under this Section 4 in the name of LILCO or its designee. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to LILCO that (a) except as set forth in Section 4.1 of the Nassau Disclosure Schedule, the Company is a corporation duly organized, validly existing and in active status under the laws of the State of New York and has the corporate power and authority to enter into this Agree- ment and, subject to obtaining the applicable approval of shareholders of the Company for the repurchase of Company Shares pursuant to Section 7(a) below under circumstances where Section 513(e) of the NYBCL would be applicable (the "BUYBACK APPROVALS") and subject to any regulatory approvals referred to herein and to the provisions of Section 513(a) of the NYBCL, if applicable, to carry out its obligations hereunder, (b) the execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate pro- ceedings on the part of the Company are necessary to authorize this Agreement or any of the transactions contemplated hereby (other than any required Buyback Approvals), (c) such corporate action (including the approval of the Board of Directors of the Company) is intended to render inapplicable to this Agreement and the Exchange Agreement and the transactions contemplated hereby and thereby, the provisions of the NYBCL referred to in Section 4.15 of the Exchange Agreement, (d) this Agreement has been duly executed and delivered by the Company, constitutes a valid and binding obligation of the Company and, assuming this Agreement constitutes a valid and binding obligation of LILCO, is enforceable against the Company in accordance with its terms, (e) the Company has taken all necessary corporate action to authorize and reserve for issuance and to permit it to is- sue, upon exercise of the Company Option, and at all times from the date hereof through the expiration of the Company Option will have reserved, 9,948,682 authorized and unissued Company Shares, such amount being subject to adjustment as provided in Section 11, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, (f) upon delivery of the -4 Company Shares to LILCO upon the exercise of the Company Op- tion, LILCO will acquire the Company Shares free and clear of all claims, liens, charges, encumbrances and security interests of any nature whatsoever, (g) except as described in Section 4.4(b) of the Exchange Agreement, the execution and delivery of this Agreement by the Company does not, and the consummation by the Company of the transactions contemplated hereby will not, violate, conflict with, or result in a breach of any provision of, or constitute a default (with or without notice or lapse of time, or both) under, or result in the termination of, or ac- celerate the performance required by, or result in a right of termination, cancellation, or acceleration of any obligation or the loss of a material benefit under, or the creation of a lien, pledge, security interest or other encumbrance on assets (any such conflict, violation, default, right of termination, cancellation or acceleration, loss or creation, a "VIOLATION") of the Company or any of its subsidiaries, pursuant to, (A) any provision of the certificate of incorporation or by-laws of the Company, (B) any provisions of any loan or credit agreement, note, mortgage, indenture, lease, Company benefit plan or other agreement, obligation, instrument, permit, concession, fran- chise, license or (C) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets, which Violation, in the case of each of clauses (B) and (C), could reasonably be expected to have a material adverse effect on the Company and its subsidiaries taken as a whole, (h) except as described in Section 4.4(c) of the Exchange Agreement or Section 1(b) or Section 3 hereof, the execution and delivery of this Agreement by the Company does not, and the performance of this Agreement by the Company will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, (i) none of the Company, any of its affiliates or anyone acting on its or their behalf has issued, sole or offered any security of the Company to any person under circumstances that would cause the issuance and sale of the Company Shares, as contem- plated by this Agreement, to be subject to the registration requirements of the Securities Act as in effect on the date hereof and, assuming the representations of LILCO contained in Section 6(h) are true and correct, the issuance, sale and de- livery of the Company Shares hereunder would be exempt from the registration and prospectus delivery requirements of the Secu- rities Act, as in effect on the date hereof (and the Company shall not take any action which would cause the issuance, sale and delivery of the Company Shares hereunder not to be exempt from such requirements), and (j) any LILCO Shares acquired pur- suant to this Agreement will be acquired for the Company's own account, for investment purposes only and will not be acquired by the Company with a view to the public distribution thereof in violation of any applicable provision of the Securities Act. -5 6. REPRESENTATIONS AND WARRANTIES OF LILCO. LILCO represents and warrants to the Company that (a) LILCO is a cor- poration duly organized, validly existing and in good standing under the laws of the State of New York and has the corporate power and authority to enter into this Agreement and to carry out its obligations hereunder, (b) the execution and delivery of this Agreement by LILCO and the consummation by LILCO of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of LILCO and no other corporate proceedings on the part of LILCO are necessary to authorize this Agreement or any of the transactions contem- plated hereby, (c) this Agreement has been duly executed and delivered by LILCO and constitutes a valid and binding obliga- tion of LILCO, and, assuming this Agreement constitutes a valid and binding obligation of the Company, is enforceable against LILCO in accordance with its terms, (d) prior to any delivery of LILCO Shares in consideration of the purchase of Company Shares pursuant hereto, LILCO will have taken all necessary corporate action to authorize for issuance and to permit it to issue such LILCO Shares, all of which, upon their issuance and delivery in accordance with the terms of this Agreement, will be validly issued, fully paid and nonassessable, and to render inapplicable to the receipt by the Company of the LILCO Shares the provisions of the NYBCL referred to in Section 5.15 of the Exchange Agreement, (e) upon any delivery of such LILCO Shares to the Company in consideration of the purchase of Company Shares pursuant hereto, the Company will acquire the LILCO Shares free and clear of all claims, liens, charges, encum- brances and security interests of any nature whatsoever, (f) except as described in Section 5.4(b) of the Exchange Agree- ment, the execution and delivery of this Agreement by LILCO does not, and the consummation by LILCO of the transactions contemplated hereby will not, violate, conflict with, or result in the breach of any provision of, or constitute a default (with or without notice or lapse of time, or both) under, or result in any Violation by LILCO or any of its subsidiaries, pursuant to (A) any provision of the certificate of incorpora- tion or by-laws of LILCO, (B) any provisions of any loan or credit agreement, note, mortgage, indenture, lease, LILCO ben- efit plan or other agreement, obligation, instrument, permit, concession, franchise, license or (C) any judgment, order, de- cree, statute, law, ordinance, rule or regulation applicable to LILCO or its properties or assets, which Violation, in the case of each of its clauses (B) and/or (C), would have a material adverse effect on LILCO and its subsidiaries taken as a whole, (g) except as described in Section 5.4(c) of the Exchange Agreement or Section 1(b) or Section 3 hereof, the execution and delivery of this Agreement by LILCO does not, and the con- summation by LILCO of the transactions contemplated hereby will not, require any consent, approval, authorization or permit of, -6 or filing with or notification to, any Governmental Authority and (h) any Company Shares acquired upon exercise of the Company Option will be acquired for LILCO's own account, for investment purposes only and will not be, and the Company Option is not being, acquired by LILCO with a view to the pub- lic distribution thereof in violation of any applicable provi- sion of the Securities Act. 7. CERTAIN REPURCHASES. (a) LILCO PUT. At the request of LILCO by written notice at any time during which the Company Option is exercis- able pursuant to Section 2 (the "REPURCHASE PERIOD"), the Com- pany (or any successor entity thereof) shall repurchase from LILCO all or any portion of the Company Option, at the price set forth in subparagraph (i) below, or, at the request of LILCO by written notice at any time prior to December 31, 1997 (provided that such date shall be extended to June 30, 1998 under the circumstances where the date after which either party may terminate the Exchange Agreement pursuant to Section 9.1(b) of the Exchange Agreement has been extended to June 30, 1998), the Company (or any successor entity thereof) shall repurchase from LILCO all or any portion of the Company Shares purchased by LILCO pursuant to the Company Option, at the price set forth in subparagraph (ii) below: (i) the difference between the "MARKET/OFFER PRICE" for shares of Company Common Stock as of the date LILCO gives notice of its intent to exercise its rights under this Section 7 (defined as the higher of (A) the price per share offered as of such date pur- suant to any tender or exchange offer or other offer with respect to a Business Combination which was made prior to such date and not terminated or withdrawn as of such date (the "OFFER PRICE") and (B) the Fair Market Value of Company Common Stock as of such date (the "MARKET PRICE")) and the Exercise Price, multi- plied by the number of Company Shares purchasable pursuant to the Company Option (or portion thereof with respect to which LILCO is exercising its rights under this Section 7), but only if the Market/Offer Price is greater than the Exercise Price; (ii) the product of (x) the sum of (A) the Ex- ercise Price paid by LILCO per Company Share acquired pursuant to the Company Option and (B) the difference between the Market/Offer Price and the Exercise Price, but only if the Market/Offer Price is greater -7 than the Exercise Price, and (y) the number of Com- pany Shares to be repurchased pursuant to this Sec- tion 7. For purposes of this clause (ii), the Offer Price shall be the highest price per share offered pursuant to a tender or exchange offer or other Busi- ness Combination offer during the Repurchase Period prior to the delivery by LILCO of a notice of repur- chase. (b) REDELIVERY OF LILCO SHARES. If LILCO elected to purchase Company Shares pursuant to the exercise of the Company Option by the issuance and delivery of LILCO Shares, then the Company shall, if so requested by LILCO, in fulfillment of its obligation pursuant to clause (a) of Section 7(a)(ii)(x) (that is, with respect to the Exercise Price only and without limita- tion to its obligation to pay additional consideration under clause (b) of Section 7(a)(ii)(x)), redeliver the certificate for such LILCO Shares to LILCO, free and clear of all liens, claims, damages, charges and encumbrances of any kind or nature whatsoever; provided, however, that if less than all of the Company Shares purchased by LILCO pursuant to the Company Op- tion are to be repurchased pursuant to this Section 7, then LILCO shall issue to the Company a new certificate representing those LILCO Shares which are not due to be redelivered to LILCO pursuant to this Section 7 as they constituted payment of the Exercise Price for the Company Shares not being repurchased. (c) PAYMENT AND REDELIVERY OF COMPANY OPTION OR SHARES. In the event LILCO exercises its rights under this Section 7, the Company shall, within 10 business days there- after, pay the required amount to LILCO in immediately avail- able funds and LILCO shall surrender to the Company the Company Option or the certificates evidencing the Company Shares pur- chased by LILCO pursuant thereto, and LILCO shall warrant that it owns the Company Option or such shares and that the Company Option or such shares are then free and clear of all liens, claims, damages, charges and encumbrances of any kind or nature whatsoever. (d) LILCO CALL. If LILCO has elected to purchase Company Shares pursuant to the exercise of the Company Option by the issuance and delivery of LILCO Shares, notwithstanding that LILCO may no longer hold any such Company Shares or that LILCO elects not to exercise its other rights under this Sec- tion 7, LILCO may require, at any time or from time to time prior to December 31, 1997 (provided that such date shall be extended to June 30, 1998 under the circumstances where the date after which either party may terminate the Exchange Agree- ment pursuant to Section 9.1(b) of the Exchange Agreement has been extended to June 30, 1998), the Company to sell to LILCO -8 any such LILCO Shares at the Fair Market Value that had been attributed to such LILCO Shares pursuant to Section 4 plus in- terest at the rate of 6.5% per annum on such amount from the Closing Date relating to the exchange of such LILCO Shares pur- suant to Section 4 to the closing date under this Section 7(d) less any dividends on such LILCO Shares paid during such period or declared and payable to stockholders of record on a date during such period. (e) REPURCHASE PRICE REDUCED AT LILCO'S OPTION. In the event the repurchase price specified in Section 7(a) would subject the purchase of the Company Option or the Company Shares purchased by LILCO pursuant to the Company Option to a vote of the shareholders of the Company pursuant to Section 513(e) of the NYBCL, then LILCO may, at its election, reduce the repurchase price to an amount which would permit such re- purchase without the necessity for such a shareholder vote. 8. RESTRICTIONS ON TRANSFER. (a) RESTRICTIONS ON TRANSFER. Prior to the Expira- tion Date, neither party shall, directly or indirectly, by op- eration of law or otherwise, sell, assign, pledge, or otherwise dispose of or transfer any Restricted Shares beneficially owned by such party, other than (i) pursuant to Section 7, or (ii) in accordance with Section 9(b) or Section 10. (b) PERMITTED SALES. Following the termination of the Exchange Agreement, a party shall be permitted to sell any Restricted Shares beneficially owned by it if such sale is made pursuant to a tender or exchange offer that has been approved or recommended, or otherwise determined to be fair to and in the best interests of the shareholders of the other party, by a majority of the members of the Board of Directors of such other party which majority shall include a majority of directors who were directors prior to the announcement of such tender or ex- change offer. 9. REGISTRATION RIGHTS. Following the termination of the Exchange Agreement, each party hereto (a "DESIGNATED HOLDER") may by written notice (the "REGISTRATION NOTICE") to the other party (the "REGISTRANT") request the Registrant to register under the Securities Act all or any part of the Re- stricted Shares beneficially owned by such Designated Holder (the "REGISTRABLE SECURITIES") pursuant to a bona fide firm commitment underwritten public offering in which the Designated Holder and the underwriters shall effect as wide a distribution of such Registrable Securities as is reasonably practicable and shall use their best efforts to prevent any person (including any Group (as used in Rule 13d-5 under the Exchange Act)) and -9 its affiliates from purchasing through such offering Restricted Shares representing more than 1% of the outstanding shares of common stock of the Registrant on a fully diluted basis (a "PERMITTED OFFERING"). The Registration Notice shall include a certificate executed by the Designated Holder and its proposed managing underwriter, which underwriter shall be an investment banking firm of nationally recognized standing (the "MANAGER"), stating that (i) they have a good faith intention to commence promptly a Permitted Offering and (ii) the Manager in good faith believes that, based on the then prevailing market condi- tions, it will be able to sell the Registrable Securities at a per share price equal to at least 80% of the then Fair Market Value of such shares. The Registrant (and/or any person desig- nated by the Registrant) shall thereupon have the option exer- cisable by written notice delivered to the Designated Holder within 10 business days after the receipt of the Registration Notice, irrevocably to agree to purchase all or any part of the Registrable Securities proposed to be so sold for cash at a price (the "OPTION PRICE") equal to the product of (i) the num- ber of Registrable Securities to be so purchased by the Regis- trant and (ii) the then Fair Market Value of such shares. Any such purchase of Registrable Securities by the Registrant (or its designee) hereunder shall take place at a closing to be held at the principal executive offices of the Registrant or at the offices of its counsel at any reasonable date and time des- ignated by the Registrant and/or such designee in such notice within 20 business days after delivery of such notice. Any payment for the shares to be purchased shall be made by deliv- ery at the time of such closing of the Option Price in immedi- ately available funds. If the Registrant does not elect to exercise its op- tion pursuant to this Section 10 with respect to all Regis- trable Securities, it shall use its best efforts to effect, as promptly as practicable, the registration under the Securities Act of the unpurchased Registrable Securities proposed to be so sold; provided, however, that (i) neither party shall be en- titled to more than an aggregate of two effective registration statements hereunder and (ii) the Registrant will not be re- quired to file any such registration statement during any pe- riod of time (not to exceed 40 days after such request in the case of clause (A) below or 90 days in the case of clauses (B) and (C) below) when (A) the Registrant is in possession of ma- terial non-public information which it reasonably believes would be detrimental to be disclosed at such time and, in the opinion of counsel to the Registrant, such information would have to be disclosed if a registration statement were filed at that time; (B) the Registrant is required under the Securities Act to include audited financial statements for any period in such registration statement and such financial statements are -10 not yet available for inclusion in such registration statement; or (C) the Registrant determines, in its reasonable judgment, that such registration would interfere with any financing, ac- quisition or other material transaction involving the Regis- trant or any of its affiliates. The Registrant shall use its reasonable best efforts to cause any Registrable Securities registered pursuant to this Section 10 to be qualified for sale under the securities or Blue-Sky laws of such jurisdictions as the Designated Holder may reasonably request and shall continue such registration or qualification in effect in such jurisdic- tion; provided, however, that the Registrant shall not be re- quired to qualify to do business in, or consent to general ser- vice of process in, any jurisdiction by reason of this provi- sion. The registration rights set forth in this Section 10 are subject to the condition that the Designated Holder shall provide the Registrant with such information with respect to such holder's Registrable Securities, the plans for the distri- bution thereof, and such other information with respect to such holder as, in the reasonable judgment of counsel for the Regis- trant, is necessary to enable the Registrant to include in such registration statement all material facts required to be dis- closed with respect to a registration thereunder. A registration effected under this Section 10 shall be effected at the Registrant's expense, except for underwrit- ing discounts and commissions and the fees and the expenses of counsel to the Designated Holder, and the Registrant shall pro- vide to the underwriters such documentation (including certifi- cates, opinions of counsel and "comfort" letters from auditors as are customary in connection with underwritten public offer- ings as such underwriters may reasonably require. In connec- tion with any such registration, the parties agree (i) to in- demnify each other and the underwriters in the customary man- ner, (ii) to enter into an underwriting agreement in form and substance customary for transactions of such type with the Man- ager and the other underwriters participating in such offering and (iii) to take all further actions which shall be reasonably necessary to effect such registration and sale (including, if the Manager deems it necessary, participating in road-show pre- sentations). The Registrant shall be entitled to include (at its expense) additional Shares of its common stock in a registra- tion effected pursuant to this Section 10 only if and to the extent the Manager determines that such inclusion will not ad- versely affect the prospects of success of such offering. -11 10. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Without limitation to any restriction on the Company contained in this Agreement or in the Exchange Agreement, in the event of any change in Company Common Stock by reason of stock divi- dends, splitups, mergers (other than the Binding Share Ex- changes), recapitalizations, combinations, exchange of shares or the like, the type and number of shares or securities sub- ject to the Company Option, and the purchase price per share provided in Section 1, shall be adjusted appropriately to re- store to LILCO its rights hereunder, including the right to purchase from the Company (or its successors) shares of Company Common Stock representing 19.9% of the Outstanding Company Com- mon Stock for the aggregate Exercise Price calculated as of the date of this Agreement as provided in Section 1. 11. RESTRICTIVE LEGENDS. Each certificate repre- senting shares of Company Common Stock issued to LILCO here- under, and LILCO Shares, if any, delivered to the Company at a Closing, shall include a legend in substantially the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF ANY EXEMPTION FROM SUCH REGIS- TRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUB- JECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED AS OF DE- CEMBER 29, 1996, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER UPON REQUEST. It is understood and agreed that: (i) the reference to the resale restrictions of the Securities Act in the above legend shall be removed by delivery of substitute certificate(s) with- out such reference if LILCO or the Company, as the case may be, shall have delivered to the other party a copy of a letter from the staff of the Securities and Exchange Commission, or an opinion of counsel, in form and substance satisfactory to the other party, to the effect that such legend is not required for purposes of the Securities Act; (ii) the reference to the pro- visions to this Agreement in the above legend shall be removed by delivery of substitute certificate(s) without such reference if the shares have been sold or transferred in compliance with the provisions of this Agreement and under circumstances that do not require the retention of such reference; and (iii) the legend shall be removed in its entirety if the conditions in the preceding clauses (i) and (ii) are both satisfied. In ad- dition, such certificates shall bear any other legend as may be required by law. Certificates representing shares sold in a -12 registered public offering pursuant to Section 10 shall not be required to bear the legend set forth in Section 12. 12. BINDING EFFECT; NO ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective suc- cessors and permitted assigns. Except as expressly provided for in this Agreement, neither this Agreement nor the rights or the obligations of either party hereto are assignable, except by operation of law, or with the written consent of the other party. Nothing contained in this Agreement, express or im- plied, is intended to confer upon any person other than the parties hereto and their respective permitted assigns any rights or remedies of any nature whatsoever by reason of this Agreement. Any Restricted Shares sold by a party in compliance with the provisions of Section 10 shall, upon consummation of such sale, be free of the restrictions imposed with respect to such shares by this Agreement, unless and until such party shall repurchase or otherwise become the beneficial owner of such shares, and any transferee of such shares shall not be entitled to the registration rights of such party. 13. SPECIFIC PERFORMANCE. The parties recognize and agree that if for any reason any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached, immediate and irreparable harm or injury would be caused for which money damages would not be an adequate remedy. Accordingly, each party agrees that, in addition to other remedies, the other party shall be entitled to an injunction restraining any violation or threatened viola- tion of the provisions of this Agreement. In the event that any action should be brought in equity to enforce the provi- sions of the Agreement, neither party will allege, and each party hereby waives the defense, that there is adequate remedy at law. 14. ENTIRE AGREEMENT. This Agreement, the LILCO Stock Option Agreement, the Confidentiality Agreement and the Exchange Agreement (including the exhibits and schedules there- to) constitute the entire agreement among the parties with re- spect to the subject matter hereof and thereof and supersede all other prior agreements and understandings, both written and oral, among the parties or any of them with respect to the sub- ject matter hereof and thereof. 15. FURTHER ASSURANCES. Each party will execute and deliver all such further documents and instruments and take all such further action as may be necessary in order to consummate the transactions contemplated hereby. -13 16. VALIDITY. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. In the event any court or other competent authority holds any provisions of this Agreement to be null, void or unenforceable, the parties hereto shall negotiate in good faith the execution and delivery of an amendment to this Agreement in order, as nearly as possible, to effectuate, to the extent permitted by law, the intent of the parties hereto with respect to such provision and the economic effects thereof. If for any reason any such court or regula- tory agency determines that LILCO is not permitted to acquire, or the Company is not permitted to repurchase pursuant to Sec- tion 7, the full number of shares of Company Common Stock pro- vided in Section 1 hereof (as the same may be adjusted), it is the express intention of the Company to allow LILCO to acquire or to require the Company to repurchase such lesser number of shares as may be permissible, without any amendment or modifi- cation hereof. Each party agrees that, should any court or other competent authority hold any provision of this Agreement or part hereof to be null, void or unenforceable, or order any party to take any action inconsistent herewith, or not take any action required herein, the other party shall not be entitled to specific performance of such provision or part hereof or to any other remedy, including but not limited to money damages, for breach hereof or of any other provision of this Agreement or part hereof as the result of such holding or order. 17. NOTICES. All notices and other communication hereunder shall be in writing and shall be deemed given if (i) delivered personally, or (ii) sent by reputable overnight cou- rier service, or (iii) telecopied (which is confirmed), or (iv) five days after being mailed by registered or certified mail (return receipt requested) to the parties at the following ad- dresses (or at such other address for a party as shall be specified by like notice): A. If to LILCO, to: Long Island Lighting Company 175 East Old Country Road Hicksville, New York 11801 Attention: Chief Executive Officer with a copy to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, New York 10022 Attention: Thomas E. Constance -14 B. If to the Company, to: The Brooklyn Union Gas Company One Metrotech Center Brooklyn, New York 11201-3850 Attention: Chief Executive Officer with a copy to: Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Attention: Seth A. Kaplan 18. GOVERNING LAW; CHOICE OF FORUM. This Agreement shall be governed by and construed in accordance with the laws of the state of New York applicable to agreements made and to be performed entirely within such state and without regard to its choice of law principles. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any federal court located in the state of New York or any New York state court in the event any dispute arises out of this Agree- ment or any of the transactions contemplated by this agreement, (b) agrees that it will not attempt to deny or defeat such per- sonal jurisdiction by motion or other request for leave from any such court and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contem- plated by this Agreement in any court other than a federal court sitting in the state of New York or a New York state court. 19. INTERPRETATION. When a reference is made in this Agreement to a Section such reference shall be to a Sec- tion of this Agreement unless otherwise indicated. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". The descriptive headings herein are in- serted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. 20. COUNTERPARTS. This Agreement may be executed in two counterparts, each of which shall be deemed to be an origi- nal, but both of which, taken together, shall constitute one and the same instrument. -15 21. EXPENSES. Except as otherwise expressly pro- vided herein or in the Exchange Agreement, all costs and ex- penses incurred in connection with the transactions contem- plated by this Agreement shall be paid by the party incurring such expenses. 22. AMENDMENTS; WAIVER. This Agreement may be amended by the parties hereto and the terms and conditions hereof may be waived only by an instrument in writing signed on behalf of each of the parties hereto, or, in the case of a waiver, by an instrument signed on behalf of the party waiving compliance. 23. EXTENSION OF TIME PERIODS. The time periods for exercise of certain rights under Sections 2, 6 and 7 shall be extended: (i) to the extent necessary to obtain all regulatory approvals for the exercise of such rights, and for the expira- tion of all statutory waiting periods; and (ii) to the extent necessary to avoid any liability under Section 16(b) of the Exchange Act by reason of such exercise. 24. REPLACEMENT OF COMPANY OPTION. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Agreement, and (in the case of loss, theft or destruction) of reasonably sat- isfactory indemnification, and upon surrender and cancellation of this Agreement, if mutilated, the Company will execute and deliver a new Agreement of like tenor and date. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly autho- rized officers as of the date first above written. LONG ISLAND LIGHTING COMPANY By:/s/ Dr. William J. Catacosinos --------------------------------- Name: Dr. William J. Catacosinos Title: Chief Executive Officer THE BROOKLYN UNION GAS COMPANY By:/s/ Robert B. Catell --------------------------------- Name: Robert B. Catell Title: Chief Executive Officer -16 -----END PRIVACY-ENHANCED MESSAGE-----